Mortgages for Self-employed People

They face risks every day in business and yet fight on for a beautiful future. Most of our economy is driven by entrepreneurs. But when it comes to lending and especially mortgages, it is not easy to qualify. It is important to know what lenders require from self-employed applicants. We hope that this article will assist self-employed applicants to get the best mortgages possible.

Many self-employed people would like to avoid paying unnecessary taxes by minimizing their income. However, if their income is less than what is required for a AAA mortgage, the interest rate premium can often exceed the tax savings. So, make sure you plan for your next mortgage. Discuss it with your accountant to make sure you have the right income on your last 2 years’ NOAs to qualify for your desired, AAA mortgage.

It is also important to note that commissioned sales people cannot be qualified under the stated income programs. They have to qualify based on their 2 years NOAs.

At Mortgage Allies, we are self-employed too and we understand entrepreneurs. We have served many self-employed people and we would love the opportunity to help you own a home. Schedule an appointment to have a conversation about your needs.

• Build and protect your credit at all costs. This is especially important for self-employed applicants.

• Make sure your business has an online profile. If lenders cannot find you online, you might as well not exist. Google yourself or your company and make sure you can find it on the first page.

• Register a business. Although an HST number, as business proof, is legitimate, lenders far prefer you to have a registered business. This can be in the form of a Sole Proprietorship, Partnership or Corporation.

• Your business needs to be registered for at least two years before you can get a mortgage from a AAA lender.

• Here are the minimum documents that lenders will require from self-employed people for a AAA mortgage:

• Sole Proprietorship:i. Master Business License
  ii. Last 2 years’ T1 Generals
  iii. Last 2 years’ Notices of Assessment (NOAs) showing no income tax arrears
• Partnership:i. Proof of Partnership – Master Business License
  ii. Last 2 years’ T1 Generals
  iii. Last 2 years’ Notices of Assessment (NOAs) showing no income tax arrears
• Corporation:i. Articles of Incorporation
  ii. Last two years’ company financial statements
  iii. Last 2 years’ T1 Generals
• Last 2 years’ Notices of Assessment (NOAs) showing no income tax arrears

• If the income on the NOAs are sufficient, the self-employed applicant qualifies. The exact same was as any other salaried, AAA applicant.

• If the applicant’s NOA income is less than what is required for the mortgage, mortgage brokers have the option to try to qualify the mortgage under “Stated Income” programs. This program applies a reasonability test to the applicant’s income. If the income makes sense for the industry and the tenure of the business, then the applicant might still qualify for a AAA mortgage.

• Any mortgages that has to qualify under stated income, needs a minimum 10% down payment. They often face small rate and mortgage insurance premiums.

• Mortgages that do not qualify under the stated income programs will have to qualify under alternate mortgages. These types of mortgage require higher down payments. Also, the rate premiums as well as lender fees will be more significant.