If you work for yourself, you have probably heard that getting a mortgage is harder. That is only half true. It is not harder so much as different, and most of the difficulty comes from not knowing what the lender is going to ask for until the day they ask for it.
The core problem is line 150
A salaried borrower hands over a letter and a pay stub and the income question is settled. When you are self-employed, the lender looks at the net income on your tax return, which is the number left after every deduction your accountant worked hard to create. Good tax planning and strong mortgage qualification pull in opposite directions, and nobody warns you about that until you are sitting across from a lender.
What most lenders want to see
- Two years of T1 Generals with the full statement of business activities
- Two years of Notices of Assessment showing no taxes owing
- Business registration or articles of incorporation
- Six to twelve months of business bank statements
- For a corporation, two years of financial statements
Lenders average your last two years. If the most recent year is lower, they will usually use the lower figure rather than the average, so a soft year matters more than people expect.
The stated income route
Some lenders will let a self-employed borrower qualify on reasonable declared income rather than the tax return figure, using bank statements and business activity to support it. There is usually a rate premium and a higher down payment requirement attached. It is a real option and it closes deals, and it should be a considered choice rather than a fallback you discover at the last minute.
Three things that help before you apply
Stop adding new debt about six months out. Keep your business and personal banking separate so the deposits are easy to trace. And if you are planning to buy in the next two years, talk to your accountant about how aggressively you want to write down income, because that conversation is much cheaper before you file than after.
Where I come in
Self-employed files are the ones where having a broker matters most. A single bank has one set of rules. I have access to lenders whose entire model is built around business-for-self borrowers, and part of my job is knowing which of them will look at your file the way you would want it looked at.
If you are self-employed and thinking about buying, refinancing, or renewing in Simcoe County or anywhere in Ontario, would a short conversation be useful before you start gathering paperwork?
Lora Fenn, Mortgage Agent Level 1, Lic. #M25003153. Dominion Lending Centres YBM Group, FSRA #11129. 705-881-2780 · lfenn@dominionlending.ca
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