You’re Self-Employed: Yes You Can Qualify For a Mortgage in Canada!

There’s a lot to be said for being self-employed. With ambition, you can create a thriving business that produces a steady revenue stream. Aside from the perks, you will find that securing a self employed mortgage is not the easiest feat to accomplish. If you understand what to expect, it’s possible to prepare in advance and increase the odds of being approved. Here are some examples of what you can do.

Understand that Your Options Are Different Now

Some people may tell you that people who are self-employed can’t get mortgages. A more accurate statement is that the process will be more difficult. In fact, it’s more difficult to be approved for a mortgage loan today than it was several years ago.

One change took place in 2014, That’s when the Canadian Mortgage and Housing Corporation chose to end mortgages for self-employed applicants, unless those applicants could supply some type of third-party validation. Prior to this change, supplying basic information about your income by way of income and expense statements was often enough.

Understand that while the process is more complex today, it’s not impossible. If you’re willing to put for the effort, there are lenders who will accept, review, and possibly approve your loan application. The trick is to know what they want and be prepared to give it to them.

Organization is Essential

If you ever needed to be organized, now is the time. Nothing about your finances and your record keeping should be approached casually. Every penny of revenue must be accounted for, including what you set aside in interest-bearing accounts, the funds earmarked for a deposit on a prospective home, and up-to-the-minute data about how much you owe and if any payments were late in the last couple of years. In short, you have to be prepared to respond without hesitation to just about any question a prospective lender may ask.

Along with having accurate information at your fingertips, your organization is likely to impress the lender. The fact that you take such care of your accounting records indicates commitment, responsibility, and transparency in financial matters. This can only help in term of being seen as less of a risk to the lender.

So is Good Credit

Monitoring your credit is also essential. There are lenders who will work with self-employed applicants if they have poor credit, but the number of lending options is greater for those with higher credit scores.

Review your credit reports before applying for a mortgage. You want to look beyond the score and see what types of comments are present. If any data is outdated or is actually not related to you, take steps to have your reports corrected. Doing so could increase your credit score by several points and give you a better chance of being approved.

Expect to Supply More Documentation

The current environment in Canada does mean you can expect to provide more documentation if you’re self-employed and seeking a mortgage. Along with data that lenders would expect from an applicant, you’ll need to supply at least two and possibly three years of income tax returns. Don’t be surprised if you need to provide some notice of assessment.

Data about your HST and GST may be required. The documentation must confirm that both are paid and up to date. Being in arrears will do nothing to inspire confidence in any lender.

Your accounting software will come in handy in terms of generating a number of reports and statements related to your revenue stream. Income and expense reports, records of outstanding debt, the aging of your Accounts Receivable, and your current balance sheet are all examples.

Don’t forget documents that establish the existence of the business. That includes Articles of Incorporation, documents that identify if you are a sole proprietorship or corporation, and even your business license may be required.

Do you have contracts in place with some clients? If so, do they provide any basis for projecting future income? For example, you may have contracts that lock in a discounted rate for services rendered if the client does so much business volume with you per year. If the volume falls short, the contract terms ensure you receive at least a certain amount of revenue. The amount of projected income could be of interest to a prospective lender.

Some Traditional Lenders Won’t Work With You

Even with all this information available, banks and other traditional lenders may or may not be willing to extend a mortgage to a person who’s self-employed. Know that the odds aren’t great, but do feel free to try one or two. That may be enough to convince you that seeking a mortgage loan from a different source, like a private lender, is a better use of your time and effort.

Your Interest Rates May Be Higher Than Average

Do be prepared for the interest rate to be a little higher for you. Keep in mind that it may not be as high as you expect.

According to Steven Tulman, president of Clover Mortgage Inc., today’s mortgage rates are still quite low compared to historical mortgage rates in Canada and are likely to increase over the next few years, which will make it even more difficult for the average Canadian to get approved for a traditional mortgage at a bank. The same may hold true for non-traditional mortgage loans as well. By acting now, you may have a slightly higher rate, but it will be better than what you would pay in five to ten years.

Do you have a reasonable amount of funds for a down payment? Can you supply documentation that confirms you have the ability to make mortgage payments on time? Do you have a decent credit score and relatively little debt? Find lenders who are willing to do business with a self-employed applicant. You may end up with an approval sooner than you thought possible.