Are you an entrepreneur?

…  Or a small business owner, freelancer, consultant, contract employee, or working in a capacity other than full-time salary?

Salaried employees can easily prove their income with a T4 slip. If you’re self-employed, chances are you’re working with an accountant and working really hard to report income that’s as low as you can possibly make it, so you can save on income tax. This can make it harder to prove to lenders that you can afford to make your mortgage payments.

Self-employed mortgage rules are getting tighter

If you’re planning to get a new mortgage soon, or might be thinking of changes to your existing mortgage, make sure you give yourself enough time to get ready. Mortgage lenders are toughening up the criteria used for qualifying you, and it’s getting much harder to get a good mortgage. As well, there are rumours of another round of federal government regulations coming our way that may impact someone in the above employment categories, when obtaining a mortgage in Canada. 

So what else can you do to get a self-employed mortgage?

The list below outlines the type of information you need to present to improve your options and get the best possible rate. You should be prepared to provide some or all of the following:

1. All possible documentation to prove income – CRA notices of assessment, tax returns, financial statements, contracts, and invoices
   
2. Proof of a registered or incorporated business – website, business registration, business bank account, articles of incorporation, and so on
   
3. Good cash flow – bank statements that confirm a track record of regular deposits are ideal; particularly if some of your income is cash income, such as for contractors
   
4. Confirmation that you are up to date with your property and income tax payments
   
5. Strong credit history – avoid being maxxed out on credit cards and credit lines (to learn more about credit, how it’s assessed, and why it matters, click here.
   
6. Solid, positive net worth – your assets, investments, and property should be in line with the income you are stating
   
7. Decent savings and/or significant equity in your existing home
   
8. Track record of job tenure in the same business or at least the same industry for many years
   
9. A solid down payment from your own resources

You have options when it comes to lenders

Another benefit of working with a mortgage broker rather than directly with a mortgage lender, is that in addition to the “usual suspects” of Canadian banks, you can access many lenders that are not federally regulated. Some of them take a less stringent attitude when it comes to self-employed borrowers. They approach things more from a common sense perspective; looking at your whole financial story rather than just what’s been reported on your tax return. This can give you more lender options and can potentially get you more money, with less hassle.

Plan, plan, plan

When I’m working with clients I always ask them to provide every piece of information so I have a clear picture of their financial situation – the good, the bad, and the ugly. This really helps in putting together the game plan for getting the best possible mortgage for each unique situation.

Just as with business planning, mortgage planning – well in advance of your next real estate move – can save you money and give you peace of mind. Getting organized and figuring out your game plan, will pay off by saving you money and giving you peace of mind. Take a look at my other posts about mortgages for entrepreneurs. And you may also find useful info from Sagen or CMHC.

As always, feel free to get in touch to discuss your situation.

Photo credit:  [c] Pemika Chedpiroon for vecteezy.com