Self-Employed Mortgages in Canada
Are you a self-employed entrepreneur, business owner, contractor, or freelancer? Have you had a difficult time proving your stated income in order to qualify for the mortgage that want? If you’ve been turned away by big banks and other traditional lenders because you’re self-employed, then we’re here to help.
Many self-employed Canadians struggle to get approved for a mortgage, due to challenges verifying their declared income. If you are self-employed, claiming a lower income is a major tax benefit, but it can also damage your buying power. Most people don’t realize that a variety of mortgage options exist through Alt-A and B lenders, which provide a competitive and flexible alternative for self-employed individuals.
At Main Street Mortgage, our team helps self-employed individuals secure a mortgage for their home. We understand the options that are available for self-employed individuals in Canada and our experts can help you find a program that will fit your specific situation.
Find out how we can help with a self-employed mortgage in Canada.
Mortgage Programs for Self-Employed Borrowers
If you are a self-employed individual in Canada and you’re trying to secure a mortgage for your home, your main challenge is typically the difference between what you claim as your income compared to what you actually earn.
Most self-employed individuals will reduce their claimed income, by writing-off certain business-related costs to reduce their tax burden. These write-offs may include vehicle expenses, travel expenses, rent, supplies, utilities, and donations to charity. This practice is typical for anyone on a contract, which includes:
- Business owners
- Retail operators
- Real estate agents
- Insurance brokers
The dilemma with self-employment is that when you apply for a mortgage, your reduced income also reduces your buying power. For example, if you make $60,000 each year, but you write-off $20,000 in expenses, your perceived buying power will only be $40,000, which limits the type of mortgage you will be eligible to receive.
In order to prove your income to a lender, a self-employed borrower must go through an income verification process, which involves submitting an official Notice of Assessment and financial statements prepared by a third party, for the previous two year period.
If you are unable to provide proof of your income in the traditional way, then you may still apply for certain programs through Canada’s default mortgage lenders. To qualify for these programs, you will need to provide a 2-year history of managing your credit and finances responsibly. You can learn more about the programs available below:
To learn more about self-employed mortgages, click here to read our blog about mortgages for entrepreneurs in Canada.
Tips for Securing a Self-Employed Mortgage
Are you self-employed in Canada and want to buy a home? If you’re looking to get started with the mortgage application process, here are a few quick tips to make it easier:
- Keep records of your accounts and tax returns. Most lenders will want to see two years’ worth of financial statements for your business accounts and tax returns, in order to verify your income. Make sure you keep this information on record.
- Build up your credit. Good credit is important for any mortgage. Aim to build up both your personal credit and your business credit scores.
- Show past and expected revenue for your business. In addition to keeping records of your accounts, you should keep track of your past contracts and make note of future contracts, so you can project expected revenue for coming years.
- Save up for a healthy down payment. It is much easier for self-employed individuals to secure a mortgage with a larger down payment, especially if they are unable to verify their income through traditional means. In these cases, you must be able to provide 10% of your home’s expected value.
- Work with an accountant to prepare your documentation. If you are looking to prove your income as a self-employed individual, we recommend that you work with a chartered accountant. A professional accountant will be able to help you review your finances and prepare documentation to support your application.