Getting a Mortgage when you are Self Employed is trickier, but not impossible
If you’re one of the 15% of Self Employed Canadians out there, getting a mortgage is not as straightforward as walking into your local bank and signing up.
According to Industry Canada, self employed workers represented 15.4 per cent of the workforce in 2012, about 2.67 million people. Some are likely looking at the ultra low mortgage interest rates being advertised and thinking that they can afford the payments on a new home. But unless you are declaring most of your income on your tax returns, it may not be that easy to qualify for the best rates.
It can sometimes work against you in a mortgage application to be self-employed. The main reason isn’t what you do for a living, but the lack of proof of income in the form of tax records filed with Revenue Canada. Although the same rules apply for qualifying for a mortgage using the standard GDS and TDS ratios, self employed income earners rarely declare all their income, especially cash based businesses.
There are two types of income that are used for self employed income earners. The first is Stated Income, the income that is reported to Revenue Canada and the is the amount you pay tax on. The second is Stated Income, the amount you actually make. This includes any cash sales or business not reported. Depending on your profession, most lenders will allow a certain gross up of sales to include as undeclared income. You could also use actual invoices and/or deposits to justify your Stated Income. A good mortgage agent with experience with self employed income earners can be invaluable to help find more income to get qualified for a mortgage.
Another factor that is important is the number of years you have been self employed. As many self employed income earners have fluctuating incomes from month to month, it helps to have at least 2 years of tax returns filed to justify your stated income. If you haven’t filed your taxes or have taxes owing to Revenue Canada, get them filed and taxes payed up before applying.
Having a more than the bare minimum 5% down payment also helps tremendously. Consider saving at least 10% and even better if you can save 20% and get a conventional mortgage rather than a high ratio mortgage.
If you are self-employed and looking to qualify for mortgage financing, talk to a licensed Mortgage Agent before you apply to get all the facts.
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Getting a Mortgage when you are Self Employed is trickier, but not impossible | Getting a mortgage can be hard, we make it easy® | Mortgage Agent Lic # M14000543 / Zolo Brokerage Lic #12343 | 647-773-9001 | info@RedDogFinancial.ca | www.RedDogFinancial.ca | July 3, 2016