Mortgages for Self Employed

Successful small business owners across the country wouldn’t trade the freedom of being self-employed for anything. The self-employed represent 15% of Canadian income earners. Considering the proportion of this growing demographic, it’s a wonder why they find getting a mortgage with a chartered bank so hard. The reason being, small business owners use their expense allowance to its full extent instead of claiming extra income and this is not recognized by the majority of banks.

Things are changing, however, and mortgage lenders in Canada are beginning to acknowledge the value of self-employment in our society. There are a number of mortgage programs designed to help self-employed business owners finance a home purchase. At DLC First Pacific Mortgage we have an extensive list of institutional and private lenders that provide outstanding mortgage options for self-employed Canadians.

More and more lenders are offering mortgage products that are tailored to fit the unique needs of the self-employed. For example, CIBC’s Self-Employed Recognition Mortgage, RBC’s Self Employed Mortgage, Scotiabank’s Scotia Mortgage for Self Employed, and Genworth Canada’s Business for Self (Alt. A) Programs, were all introduced to help self-employed borrowers fulfill their home ownership goals.

The mortgage application process for self-employed Canadians is similar to that of T4 employees. Minimum credit requirements, debt to income ratios and down payments are much the same also. Once you complete the application, submit all supporting documents and sign the paperwork, the lender will quote you a rate.

One thing that is different is the documentation requirements for self-employed citizens. Regular employees typically provide a T4 or paystub for income verification, whereas, the self-employed also need to submit: Notices of Assessment, financial statements prepared by an accountant, and T1 and/or T2 Generals. Depending on your organizational structure different documents may be required.

Most lenders need to see at least two years worth of financial records, usually your last two tax returns. While some lenders consider applicants with less than two years of income, they tend to offer higher interest rates and restrictive terms. Similarly, there are specialized lenders that take into account the tax write-offs that substantially lower the declared income of self-employed people. These mortgage lenders, do not need to verify your income, a practical estimate of your annual income will suffice.

Small business owners write off their expenses to reduce their net income, thereby, creating considerable savings come tax time. But in terms of securing a mortgage this can be a win-lose situation. During the application process, lenders use debt-to-income ratios to measure how much of your earnings are spent paying off debt. Deducting expenses to show a lower net income, will increase your debt-to-income ratios, which could limit your chances of being approved for a mortgage.