Are you self-employed?
Small and medium-sized businesses are the engine of the Canadian economy.
Getting a mortgage as a self-employed individual in Canada can be a bit more challenging than for those with a traditional job, but it’s not impossible. Here are a few tips for obtaining a mortgage as a self-employed individual in Canada:
- Maintain good credit: A good credit score can help you get a better mortgage rate, so make sure to pay your bills on time and keep your credit card balances low.
- Document your income: As a self-employed individual, you may need to provide more documentation to prove your income, such as tax returns, financial statements, and a letter from your accountant.
- Consider a co-borrower: If you have a spouse or partner who is employed and has a good credit score, you may want to consider applying for a mortgage with them as a co-borrower.
- Shop around: Different lenders have different criteria for evaluating the income of self-employed individuals, so it’s important to shop around to find a lender that is willing to work with you. This is where a mortgage broker can really help.
- Consider a specialist lender: Some lenders specialize in mortgages for self-employed individuals and may be more likely to understand your situation and provide you with a loan.
- Be prepared to make a larger down payment: Self-employed individuals may be required to make a larger down payment, typically 20%to 35% is common or more, to offset the risk for the lender.
It’s important to work with a mortgage broker who has experience helping self-employed individuals obtain a mortgage to ensure you find the best loan for your needs. They can help you understand the mortgage options available and the documentation you need to provide to the lender.
Don’t forget about your credit score: Lenders will review your credit score, which is a measure of how often you’ve missed payments on loans and other debts. If you haven’t had any late payments in the past year, your score should be high enough to get approved for a mortgage loan.
You may be required to have a business plan: Some lenders require self-employed individuals to have a business plan before they provide financing. If this is the case, your mortgage broker can help you create one. They will also be able to tell you if there are any other requirements such as financial statements or personal income tax returns that need to be provided.
If you have been self-employed for less than two years: Some lenders may require that you have been self-employed for at least two years before they will extend financing to you. In this case, your mortgage broker can help find a lender who will work with your situation.
What’s better, we have a long list of institutional and private lenders that offer excellent mortgage options for self-employed Canadians. These lenders in Canada understand that self-employed individuals have tax write-offs creating significant reductions in their declared income. With these mortgage lenders, you will not be required to prove your income and a reasonable estimate of your annual income will be acceptable.
Self-employed Canadians should be aware that they are not eligible for government-backed mortgages unless their income declared support their borrowing needs.
You can get a mortgage with bad credit and a low income, but it’s not easy. To qualify for a mortgage, you need to have an income that covers your current expenses as well as your monthly payments on the new home. If you don’t have enough money coming in to cover both, you may be able to get help from someone else who will co-sign on the loan. It important to understand the worse your credit score is the greater amount of funds you maybe require putting down.
When being self-employed there is a lot to consider and in most cases I find that people don’t have a strong understand of what in their best interest. For example, is it better to declare less income and pay less income tax but have a higher interest rate on your mortgage or is it better to declare more income paying greater income tax but receive a lower interest rate. You may be surprised as there can be 10 of thousands of dollars difference between these two. So, the question is what best for you. That where we come into play at Key Mortgage Partners.