A Guide to Self-Employed Mortgages and What You Need to Qualify

What is a Self-Employed Mortgage?

These loans are tailor-made for individuals whose income doesn't come from a regular salary but rather from being their own boss or owning a majority share in a company. The key distinction here is that self-employed folks often experience income fluctuations, unlike those who receive a steady paycheck on a set schedule. Let's explore the ins and outs of these mortgages designed to suit the unique financial landscape of self-employed individuals.

In a regular mortgage application, your income is assessed by the lender using your pay stubs, along with a confirmation based on your last two years of T4s (Statement of Remuneration) and Notice of Assessments (NOAs). However, when it comes to a self-employed mortgage, things get a bit more nuanced.

Self-employed individuals can qualify for either a prime or subprime mortgage, depending on how their income is evaluated. This evaluation determines whether their financial situation aligns with the lending criteria. To simplify, self-employed individuals generally fall into one of four categories when applying for a mortgage:

Sole proprietor with two years of verifiable (taxed) income.
Sole proprietor without verifiable income.
Incorporated individuals with two years of qualified (taxed) income.
Incorporated without qualified income.

Understanding which category you fall into is crucial when navigating the world of self-employed mortgages. It's not just about the income; it's about how it aligns with the specific criteria set by lenders.

Qualifying For A Mortgage When Self-Employed

Securing a mortgage when you're self-employed hinges on how long you've been working for yourself and whether or not your business is officially incorporated. Let's explore the factors that play a role in qualifying for a mortgage as a self-employed individual.

Sole Proprietor with Proven Income: Income for at least 2 years with T4s and NOA.
Sole Proprietor without Proven Income: Minimum of 6 months of business deposit history.
Incorporated with Established Income: Qualified income with 2 years of T4s and business financial statements.
Incorporated without Established Income: Minimum 6 months of deposits or your stated income.

How Much of my Appraisal Home Value can I Finance When Self-Employed?

Unlocking the potential to own your dream home is easier than you think. By showcasing your income through a mix of pre-filing (T4s) and post-filing (NOAs) spanning two tax years, you can borrow up to 80% of your home's purchase price without default insurance. With default insurance, you could even secure up to 95%. Your down payment size plays a key role, allowing you to access a mortgage that aligns with your financial goals. It's a seamless process that empowers you to take confident steps toward homeownership.

Types of Self-Employed Income Verification

Income verification comes in three main types:

Traditional Income: This is the taxed income averaged over two years.
Non-Traditional Income: Verified through dividends or deposit history, and can include gross-ups from corporation tax filings.
Stated Income: Declared income.

Required Documents for a Self-Employed Mortgage

Securing a mortgage when you're self-employed? You'll need your Notices of Assessment (NOA) and Income Tax Statement (T1) on hand. These documents are essential for qualifying when you can't supply T4s. Let's dive into the key requirements for a self-employed mortgage!

Depending on the lender, you might need to share various documents. These include:

Credit Scores: Provide your personal and business credit scores.
Financial Statements: Share financial statements for your business.
Tax Compliance: Show evidence of full payment of HST and/or GST, and ensure your income taxes are up to date.
Ownership Confirmation: Prove your principal and majority ownership in the business.
Revenue Projections: Submit contracts indicating past and expected revenue for the next few years.
Business Documentation: Include a copy of your GST/HST number, Articles of Incorporation, or Business Number Registration.
Down payment Verification: Demonstrate that your down payment was not gifted.

Concluding Remarks

Securing a mortgage while self-employed is totally achievable. Just like with regular mortgages, stable income, good credit score, and having a solid down payment can up your chances of mortgage approval.

Reach out to us and understand how to make your self-employed income qualify you for your mortgage.