Almost 20% of all Canadians currently earning an income in the country are self-employed, yet it remains notoriously difficult for them to obtain a mortgage; why should this be? As a growing demographic, and one that is set to increase, shouldn’t it be easier for them to find a mortgage?
Below, we take a closer look at the reasons behind the problems self-employed people face when seeking a loan to buy a property, and offer some important guidance and support:
Income – how easy is it to prove if you’re self-employed?
For the self-employed, proving their income isn’t always easy, and many owners of businesses record multiple expenses to try and minimize their tax requirements; this is something that the majority of lenders don’t (or refuse) to recognize.
If, as a self-employed person, you’re able to provide personal tax Notices of Assessment going back at least 3 years, and include them with your mortgage application, then generally speaking, you’ll be able to access the same mortgage deals as a traditional borrower. However, should you be unable to include these with your application, then you’ll have to rely on a solid credit history, and be able to stump up a minimum 10% down payment.
What other supporting documents must self-employed people produce?
To obtain a mortgage as a self-employed individual, along with your Notices of Assessment, you may also be required to include the following documentation with your mortgage application:
- Statements of finance for your business
- Evidence that your HST and/or GST has been fully paid
- Contracts showing your predicted future revenue
- Both your personal and business credit scores
- Evidence that you are the principal owner of the business
- A copy of your borrowers’ business or GST license or Article of Incorporation proving that you’re licensed
- Evidence that your down payment was not a gift to you
Mortgage default insurance rates for self-employed mortgages:
If, as a self-employed person, you can provide evidence of your income through your personal tax Notices of Assessment, then your mortgage default insurance policy will be the same as if you were applying for a traditional mortgage. That is to say that if you’re only making a down payment of between 5 and 19.99%, you’ll be required to pay a premium, but you don’t need to pay it once you’ve put down at least 20%. Paid off over the duration of your loan, the premium is then added to your mortgage.
How a mortgage broker can help if you’re self-employed:
Knowing which lenders are offering the best rates for your circumstances – especially when you’re self-employed – can be tricky, tiresome and downright tedious at times, and that’s why working with a mortgage broker is such a good idea. Able to make sense of the mortgage market and translate it for you in layman’s terms, they also have access to many deals that you may not be offered if searching for a loan independently, and hiring one is always a sound investment.
For more detailed advice and guidance on securing a mortgage as a self-employed person, contact a mortgage agent, specialist or broker.