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How To Get A Mortgage While Being Self-Employed in Canada
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How To Get A Mortgage While Being Self-Employed in Canada

Being self-employed should not be a barrier to getting a mortgage. With mortgage rules being tightened at banks the last few years, getting a mortgage is a lot harder- especially self-employed mortgages.

There are great advantages to being in business for yourself. The other side of this is that these great benefits actually make it harder to qualify for a mortgage because their income is significantly reduced on paper. The benefits of writing off expenses are great, yes, but at the end of the day we are likely able to “verify” only a nominal amount of what you’ve earned in your business. That is why lenders and insurers have created a stated* (projected) income program for those finding themselves in this very situation.

*The stated income portion (that is submitted to a lender) must be reasonable based on the industry, length of operation, and type of business.

Our self-employed mortgage options solve the problem of not showing enough income to qualify. We can get self-employed clients into a home with as little as 10% down payment from your own resources, and the option to state (project) your income. If you can’t save the 10% we have an option to allow 5% of the 10% down payment to be gifted from an immediate family member.

If you are a business owner, and your income qualifies with provable income, then you can purchase with as little as 5% down. Verified income is using the most recent 2 years of personal income declared to Canada Revenue Agency.

The interest rates on this product are pretty much the same as our regular rates. Some lenders do charge a small premium for their self-employed mortgage options. The default insurance premium (CMHC/ Genworth/ Canada Guaranty) is also higher for this product than your standard mortgage.

Subprime Business for Self Options

Even with the great self-employed mortgage options we offer on the prime side, a lot of clients still can’t qualify due to their self-employed status. We have another option for these clients, an alternative/ subprime mortgage options (*B Lenders). The options we have on the subprime side of the business are much less restrictive than they are on the prime side. These include financing clients with less than 2 years self-employment, poor credit history, or simply lower credit scores.

As with all subprime loans, the rates are a little higher. However this is a small price to pay for an option where there normally wouldn’t be one. Generally, you need 20% down for these options. Talk to us today about our business for self-mortgage options.

Planning Ahead for your Home Purchase

So, how does one show enough income when they are self-employed? The following points are suggestions on strategies on how to plan ahead, and be prepared when you are ready to move forward in arranging a mortgage for property purchase.

  1. The easiest way to plan your mortgage is to pay yourself appropriately in the two years leading up to the property purchase. Yes, this means you will pay more personal taxes. However, your income will be higher which will easily qualify you for the mortgage amount that you are looking for, and likely save you thousands in default insurance premiums.
  2. Set up your finances through a certified accountant. Many lenders want to see self-employed income submitted through a professional, rather than doing it yourself. A certified accountant knows what to look for, and has enough experience to understand the tax implications. Make sure you discuss with them what your goals are so that they can set up your taxes appropriately.
  3. If you do not pay yourself enough to qualify using verified income, ask us about “stated income” options. There are lenders offering this solution as an option. This is based on you being self-employed for at least two years.

Here’s the bottom line: this is a very complicated product and process, which recently became that much more complex. Now more than ever, you need to rely on the expertise of an expert that does nothing but deal in mortgages all day, every day.

Talk to a professional, highly experienced mortgage broker about your unique situation.

Documentation Requirements for Self-Employed Mortgages:

Sole Proprietorship

A one-owner operation where the owner directs all the activities of the business, assumes all authorities and obligations, and is liable for its business debts. The sole proprietor income is reported to revenue Canada on the standard tax return (T1 General) together with Revenue Canada’s required statement of business or professional activities.

Any one of the following must confirm at least two (2) years business-for- self tenure:

  • Business License
  • GST/HST Return Summary
  • T1 Generals with statement of business activities attached for a minimum 2 years prepared by an arm’s length third-party
  • Audited Financial Statements for the last 2 years, prepared and signed by a CA
  • Plus a recent Notice of Assessment or a signed affidavit by the borrower(s) to confirm no income tax arrears (Note: in the province of Quebec, both federal and provincial NOA’s will be required)

 

Partnerships

Partnerships are businesses owned by two or more individuals who share the profits or losses of the business operation. The partnership income is reported to Revenue Canada on the standard tax report (T1 General) together with Revenue Canada’s required statement of business or professional activities, which reflects the percentage of the NET income or loss for each partner of the enterprise.

Any one of the following must confirm at least two (2) years business-for- self tenure:

  • Business License
  • GST/HST Return Summary
  • T1 Generals with statement of business activities attached for a minimum 2 years prepared by an arm’s length third-party
  • Audited Financial Statements for the last 2 years, prepared and signed by a CA
  • Plus a recent Notice of Assessment or a signed affidavit by the borrower(s) to confirm no income tax arrears (Note: in the province of Quebec, both federal and provincial NOA’s will be required)

Corporations

A limited company or corporation is a legal entity, separate from the persons (all shareholders) who own it. The business can own assets, enter into contracts and conduct business transactions in its own capacity. The company is called limited because the liability of the shareholders is limited to their investment. All provincial Corporations must obtain articles of incorporation from the province in which they are registered or may be federally incorporated. The applicant’s personal income will be reported by T4 from the corporation.

Any one of the following must confirm at least two (2) years business-for-self tenure:

  • Articles of incorporation
  • Audited Financial Statements for the last 2 years, prepared and signed by a CA
  • Plus a recent Notice of Assessment or a signed affidavit by the borrower(s) to confirm no income tax arrears (Note: in the province of Quebec, both federal and provincial NOA’s will be required)

*Some additional information may be required based on the nature of the business.

 

To discover more about self-employed mortgages, contact Tim! 

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