What you need to know about getting a self-employed mortgage

If you’re an entrepreneur, small business owner, consultant, or work on contract rather than full-time salary, and will be mortgage shopping soon, just a heads up. It’s getting harder and harder for people who are self-employed to get mortgage financing.

Salaried employees can easily prove their income with a pay slip, job letter, and T4 slip. If you’re self-employed, chances are you’re working with an accountant.  The accountant’s mission is to reduce your taxable income. They’ll be working really hard to help you report income that’s as low as you can possibly make it. While the income tax savings are great, the low income you’re reporting can make it harder to prove to mortgage lenders that you can afford to make your mortgage payments.

So what can you do?

I can’t stress the importance of getting professional advice enough. Based on your situation, an experienced mortgage broker or mortgage professional can advise you of the type of information you need to present to improve your options and get the best possible rate.

Financial documents you’ll need to provide for a self-employed mortgage

Be prepared to provide a lot of documents.  These include some or all of the following:

• Whatever documentation you have to show your income.  This includes at least two years’ worth of CRA notices of assessment, tax returns including all the schedules for business or professional income, financial statements, contracts, and invoices
• Proof of a registered or incorporated business, that you’ve had for at least 6 months.  Show a website, business registration, business bank account, or articles of incorporation (if your business is incorporated)
• Business account bank statements, showing a track record of regular deposits. This is particularly important if some of your income is cash income, such as for contractors
• Confirmation that you are up to date with your property and income tax payments
• Strong credit history. Avoid being maxed out on credit cards and credit lines (to learn more about credit, how it’s assessed, and why it matters, click here)
• Solid, positive net worth – your assets, investments, and property should be in line with the income you are stating
• Decent savings and/or significant equity in your existing home
• Track record of being in the same job, same business or at least the same industry for many years
• A solid down payment from your own resources

How a mortgage broker adds value for self-employed people

A benefit of working with a mortgage broker rather than directly with a bank or other mortgage lender, is that in addition to the “usual suspects” of Canadian banks, the broker helps you to access many lenders that are not federally regulated. Some of them have a better understanding of 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. I need to know 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.

Are you self-employed? Getting a mortgage or have one? I’d love to hear about your experience.  Comment below, or connect with me directly.  

photo credit: [c] huseyn naghiyev for vecteezy dot com