Mortgage basics for the self-employed

Note: I am not a mortgage broker. This is for information purpose only.

Not so long ago, pretty much anyone in Canada could obtain a mortgage. Down payments could also be borrowed. A self-employed person merely had to fill in a declaration of “stated income” without having to produce supporting documentation.

These days are long gone. Over the last few years, the Federal Government  passed legislation to tighten mortgage rules.

If you are self-employed, you will be faced with more requirements than if you are an employee. Lenders have different criteria, but usually:

  • You need to be in business for at least 2 years, with proof such as a business license, number or GST registration.
  • You need to submit Notices of Assessment for both yourself and your business.
  • You need a bigger down payment, 5% usually won’t cut it.
  • You need to have a good credit file and score.
  • You have no tax arrears

If your income cannot be verified, some lenders will still lend you 65% of the value of the property, i.e. you need a 35% down payment.

Usually, there is also a limit to the amount you can borrow, even if your income is in the 6-figure range. Qualifying for a mortgage above $ 500 000 can be even more difficult.

A lot of business owners offset expenses against their revenue to lower their tax bill. It makes sense business-wise, but it can backfire when applying for a mortgage. Lenders want to ensure you can repay the mortgage. Some lenders will gross up your business revenue to qualify you.

If you are self-employed and plan on buying a home, you may need to plan 2 or 3 years ahead. Get your affairs and your finances in order.

If you are refinancing or renewing, you will have to meet the same requirements as above.



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