How to Get a Mortgage when you are Self Employed!

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How to get a mortgage when your self employed?

If you’re self-employed and looking to get a mortgage, you may be feeling overwhelmed and unsure of where to start. Don’t worry, you’re not alone! The good news is that getting a mortgage as a self-employed individual is definitely possible, it just requires a bit of extra effort and preparation.

The first step in getting a mortgage when you’re self-employed is to find a mortgage broker that specializes in self-employed programs. While banks can offer mortgages to self-employed individuals, they often have stricter requirements and may not fully understand the complexities of self-employment income. A mortgage broker who has experience working with self-employed individuals can help guide you through the process and find the best options for your unique situation.

Once you’ve found a mortgage broker, the next step is to determine whether you are an incorporated business or a sole proprietor. This will impact the types of paperwork you need to provide in order to qualify for a mortgage.

If you are incorporated, you will need to provide the following paperwork:

  • Incorporation documents
  • Last two years T1 Generals
  • Last year’s notice of assessment showing taxes paid
  • Last two years of business financials

On the other hand, if you are a sole proprietor, you will need to provide:

  • Last two years notice of assessment
  • Last two years T1 Generals

It’s important to note that the above requirements may vary depending on the lender and the specific program you’re applying for. Your mortgage broker can help you navigate these requirements and ensure you have all the necessary paperwork in order.

One option for self-employed individuals is the stated income program. This program is designed for incorporated persons who have been in business for over two years and are claiming a small personal income. Essentially, this program allows you to “bullshit” your income in order to qualify for a mortgage. While this may sound too good to be true, it’s important to note that this program often comes with higher interest rates and fees.

If you are a professional, such as a doctor or lawyer, there may be special programs available to you as well. These programs take into account your unique income situation and may offer more favourable terms than traditional mortgage programs.

If you’ve been self-employed for less than two years, you may still be able to qualify for a mortgage by putting down 20% and using the bank statement approach. This approach involves using your last 6-12 months of bank statements to estimate your income and determine your eligibility for a mortgage.

If you’re newly incorporated, you can still qualify for a mortgage by putting down 20% and working with a B lender. B lenders are lenders who offer loans to individuals who may not qualify for traditional mortgages due to factors such as low credit scores or non-traditional income sources.

Finally, if you claim a strong personal income, the bank may be able to gross up your income by 15-20% if you are the sole owner of the company. This can help increase your eligibility for a mortgage and make it easier to qualify for the home you want.

Here are some additional points to consider when trying to get a mortgage as a self-employed individual:

  1. Keep your financials organized: As a self-employed individual, it is crucial to keep your financials organized. This includes keeping track of your income and expenses, maintaining accurate records of your business finances, and filing your taxes on time. This will help you when it comes to providing the necessary paperwork for your mortgage application.

  2. Improve your credit score: Your credit score is an important factor that lenders consider when approving a mortgage application. If you have a lower credit score, you may face higher interest rates or may be denied altogether. To improve your credit score, make sure to pay all of your bills on time, keep your credit card balances low, and avoid applying for new credit in the months leading up to your mortgage application.

  3. Be prepared to show a steady income: Lenders want to see that you have a steady income and that your business is profitable. They will typically look at your income over the past two years to determine your eligibility for a mortgage. If your income has been fluctuating or you have had a loss in the past two years, it may be more difficult to get approved.

  4. Consider a co-signer: If you are having trouble getting approved for a mortgage on your own, you may want to consider finding a co-signer. This could be a spouse, family member, or business partner who has a steady income and good credit. Having a co-signer can improve your chances of getting approved and may also help you secure a lower interest rate.

  5. Shop around for lenders: Not all lenders have the same requirements for self-employed individuals. Some may be more willing to work with you than others, so it is important to shop around and find a lender that understands your unique situation. Working with a mortgage broker who specializes in self-employed individuals can also be helpful, as they can help you find the right lender and navigate the application process.

Getting a mortgage when you are self-employed can be more challenging than if you were a traditional employee. However, with the right preparation and the help of a knowledgeable mortgage broker, it is possible to secure a mortgage that meets your needs. Remember to keep your financials organized, improve your credit score, show a steady income, consider a co-signer, and shop around for lenders to find the best option for you.

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Sean Rampersaud

Sean Rampersaud

Sean has been a mortgage broker in Canada for 14 years. We have helped countless amounts of clients achieve their mortgage goals! Call me anytime at 780-278-4847

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