Securing a mortgage: Tips for the self-employed

Date: Friday, May 11th, 2012

By Melanie Epp

Like over 20% of Canadians, Sara is self-employed. She works as a graphic designer in a busy city in Ontario. Although she’s been in business for nearly two years and she’s making more money than she’s ever made before, her bank won’t give her a mortgage. And she’s not alone. When Sara asked her friends and family, they agreed that getting a mortgage while self-employed could be extremely difficult task. Even though they have excellent credit scores and money in the bank, it would seem that many of the major financial institutions shy away from lending to self-employed individuals. Provided she meets the criteria, it is possible for Sara to get a mortgage. Here’s how:

What makes self-employed individuals different?

Before we get into the how, let’s talk about the why. Why is it so difficult to secure a mortgage if you’re self-employed? Unlike traditionally employed individuals, those who work for themselves do not receive regular pay, nor do they get a printed T4 at the end of the year. While they might be making really good money, their income is best described as ‘inconsistent.’ When you work for yourself, the only thing for certain is that nothing’s for certain. For this reason, many of the major financial institutions consider self-employed individuals too risky to qualify.

How to secure a mortgage

Mortgage lenders want to make sure that you are a viable candidate for a mortgage. They need to know that you can make your payments, no matter what business is like. While it’s the job of the lender to carefully assess the risk involved in lending to individual clients, it’s the job of the individual to lessen that risk. It is your responsibility to show the lender that you are a desirable candidate. Here’s what you’ll need to provide in order to secure a mortgage:

Proof of income: Most mortgages lenders will require you to have 2 years of steady income prior to applying. You will be asked to provide a two-year average of Line 150 on your tax return. While small business owners claim expenses, which can make their income appear lower, a good lender will take this into consideration.

An excellent credit history: A good credit score will get you far – an excellent score will get you even farther. Make sure that in the months leading up your visit to the lender that you keep on top of all of your finances. Don’t miss a payment and lower your personal debt. Doing so will increase your chances of securing a mortgage at a good rate.

Other paperwork, including HST returns and business registration papers: Keep a file of important documents on hand in case your lender needs to see them. Make copies, if necessary.

A hefty down payment: While 5% is usually acceptable for the traditionally employed, you can expect to put at least 10% – and as high as 20% – down. Know that some of that money can be gifted, though.

One more thing to consider is the location of your business. Some lenders prefer to give money to business owners whose place of work is located near a busy, urban centre. It is thought that the location of your business helps to determine whether or not it will be busy year round.

While the journey to homeownership can be tough at times, it’s certainly not impossible. Call around and speak with a mortgage specialist. They’ll tell you everything you need to do to prepare. The more you prepare yourself ahead of time the more desirable you’ll be in the eyes of the lender.

Ontario Mortgage Superstore is here to help you. We arrange Self employed mortgages with as a little as 5% down (2 years proveable income). Whether you are a first time home buyer or looking for a new to Canada mortgage. Use our mortgage calculator to find out how much you can afford.

Melanie Epp

Melanie Epp

Melanie is a freelance writer based in Guelph, ON. A member of both PWAC and IFWTWA, she writes on a variety of subjects, including real estate, personal finance, and marketing. She is a regular contributor on Sympatico's

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