Perhaps you’re a freelancer, or how about a private contractor? Being your own boss can be an enjoyable and deeply rewarding experience – take it from yours truly, not to mention my many years in the industry as a mortgage broker! Speaking from my years in helping clients secure the best possible rates with trusted lenders, I know what it takes to get a mortgage when you’re self-employed.
If you’re unsure, that’s okay! Let’s dig deeper to help you decide which options are best suited for your borrowing and homeowning needs.
First off, let’s quickly recap how a “regular” mortgage works here in Canada. To secure preapproval for the amount you need, the lender must first figure out whether the mortgage is something you can realistically pay off. Therefore, a variety of factors are examined, including the net income of your household.
Here’s where it gets interesting. See, that net income, especially if you’re the only member of your household, is usually going to be lower if you also run your own business. From office supplies to tax deductions, ordering products or materials, employee wages, service vehicle maintenance, and otherwise, it might feel like everyone’s got their hands in the cookie jar. Collectively, this lowers your net income, as those expenses must be covered by whatever your business takes in, and those costs will vary depending on what you offer.
Traditional, Nontraditional, or No Means of Income Verification?
With a self-employed mortgage application, be aware that you’ll need to verify said employment income through annual taxes. Alternatively, you can let the lender check your business’ finances/statements to determine approximately what you’re earning. However, if you can’t prove to the lender what your income is, you’ll be classified as a high-risk borrower, and that means the highest rates.
Of course, even if your business has plenty of expenses, there still ought to be income coming in (at least, I’d sure hope so). Lenders anticipate this when it comes to self-employed mortgages in Canada – it’s why there’s a more flexible and realistic alternative for folks just like you! Therefore, with such a mortgage, all aspects of your income and expenses that eat into said earnings are considered, not to mention the fact that you don’t get a regular paycheque. What’s more, they don’t keep you waiting – preapproval for a self-employed mortgage can happen over the course of a single day, sometimes sooner!
On that note, it’s surprising how many folks apply for a self-employed mortgage who don’t exactly fall under that category. If you get paid by someone else or earn a fixed, guaranteed income, then this isn’t the home mortgage solution for you. The same applies if you’re an outside shareholder in a company and receive dividend payments – even if you’re not on the internal payroll, you’re still not self-employed. That said, don’t worry; there are plenty of other options available that an experienced broker is happy to help you with. For instance, I work closely with clients and established lender connections to secure the best possible rates for the former. Plus, I’m able to walk you through all your available options, so don’t hesitate to reach out when you’re ready to make your dream home a reality!
If you provide all the financial proof needed to help the lender classify you as a low-risk borrower, you’ll get incredibly competitive rates on your self-employed mortgage. Said rates, however, will still be a bit higher than with a conventional mortgage one would get if they didn’t work for themselves.
As touched on earlier, funnily enough, your financial records can make or break your financial outlook when it comes to a self-employed mortgage. You also obviously need to be self-employed in the first place. If you meet the established criteria, which can vary depending on the type of lender, then approval is generally quite zippy and efficient, so you won’t have long to wait!
There’s a chance that, depending on what financial details you’re able to divulge, the lender might be extra generous. Higher-than-expected preapproval amounts are relatively common, meaning there’s more available for you to borrow if you need it. However, if you don’t need to borrow the entire preapproved amount for your home, don’t! Save your money.
On the topic of saving your hard-earned business profits, a self-employed mortgage may allow you to enjoy lower tax payments. This all depends on whether you’re able to secure a competitive fixed or variable mortgage, along with how high the borrowed amount will be.
Need help finding the best self-employed mortgage options in Canada? Book an appointment to chat and finetune your plans in more detail. With my mind and your homeowning plans, together, we’ll find ideal options with the most competitive rates.
"My name is Andrew Thake. I’ve been a mortgage broker and agent for over 15 years, and in that time I’ve helped over 2200 happy clients find the right mortgage solution for them and their situation."