If you're self employed or a business owner — your mortgage process may be different. Get clear details and advice on your best mortgage path, with your best rate.
As a self-employed Canadian, being your own boss shouldn't stand in the way of owning a home. To find the best mortgage solution that fits your 'self-made' lifestyle, you need unbiased advice and access to the right lender and product for your situation.
Whether it's your first home or next home, your mortgage process and product are based on how your income is declared — stated vs taxable — and how your financial and business situation aligns with the lender's perceived risk.
Several lenders, including in-house THINK Financial, offer self-employed (stated income) mortgage products or programs tailored to self-employed criteria. However, you may not need a self-employed product, depending on your details.
Here's how a mortgage works if you're self-employed.
Stated income refers to the income you choose to report to a lender rather than the income you declare on your tax return (e.g. using corporate vs personal income).
Because this income isn't stated on pay stubs or tax returns, a lender qualifies the stated income through other means (e.g. provided bank statements) and compares it against industry standards.
Stated income mortgages are typically for self-employed individuals and may come with stricter terms and higher rates.
As a business owner, your income source is likely declared differently than that of a company-employed individual. Your business type, credit standing, and down payment amount and source can also play a starring role in your mortgage solution.
Lenders usually look for:
Self-employed mortgages can be complex, but it's a matter of drilling down into the details to determine whether you can apply for a traditional mortgage or need a self-employed product, which can be with either a conventional or alternative lender.
Regardless of your income source, lenders often use your income tax payment history to demonstrate your income stability for paying off a mortgage loan.
For self-employed applications that can't supply a full 2-year history of personal taxable income, your expert broker can help analyze your documents and extract the relevant numbers (for stated income) to provide lenders with clarity on your situation.
The more complex your income sources and reporting, the more likely your mortgage solution lies with an alternative lender.
An IT specialist, employed with a company for over 10 years, has recently decided to change companies, but now contracts their services to the company instead of becoming an employee (i.e. is now considered self-employed).
In this case, a True North broker can likely use the previous employment income history towards the mortgage application by demonstrating to the lender that the individual is employed in the same industry and providing the same service.
Claiming lots of business expenses can help lower taxable income, which can make it harder to qualify for a mortgage. However, some lenders may adjust or 'gross up' income to account for this practice — your expert True North broker can help bring it to a lender's attention.
Not every self-employed situation requires qualification through these specialized mortgage products or programs, provided your income history meets a conventional lender's threshold for a 'regular' mortgage.
Two self-employed individuals each bring in $200,000 annually in corporate income. One pays themself $100,000 in annual personal taxable income (pays more income tax), and the other only pays themself $20,000 (pays less income tax):
Additionally, the nature of the business, for example, a self-employed individual trading money for time (e.g. an IT contractor), will have a simpler time in qualifying for a mortgage vs a restaurant owner, whose business is (significantly) more complex in the eyes of a lender.
Note: A lender looks for annual filed income taxes to qualify your income.
Not always — it depends on the case-by-case self-employment details and the lender criteria:
Self-employment can often mean a balance between declaring personal income for paying taxes and paying higher lender rates for mortgages and other loans (such as an auto loan) based on the income reported.
No, you don't need mortgage default insurance. However, if qualifying through an insured self-employed program, default insurance is typically required for up to a 35% down payment, and you'll need to pay an insurance premium.
Yes, a down payment of 20% of the home purchase price or more may give you more options, with more lenders. Some self-employed mortgage products require a larger down payment, from 10% up to 35%. The larger your down payment, the more flexibility you may have.
A larger down payment demonstrates to a lender that you have cash to back up your loan, and can give you more negotiating room — especially for loans with an LTV (loan-to-value) greater than 65% (35% down payment), and may help lenders to lean less on other criteria (such as credit score).
Yes, most conventional and alternative lenders allow your down payment to be a gift from an immediate family member, though providing the amount through your own sources (e.g. from a savings account, registered savings product like an RRSP, or other investments) is preferred.
We really know mortgages — and can simplify your self-employed mortgage journey.
We're available to help you across Canada, in your preferred language. Talk to one of our friendly True North Mortgage brokers, drop into a nearby store, or use our simple online application form below to get started.
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