Mortgage tips for the self-employed

Five ways to help you qualify for a mortgage

The nature of work has shifted in the past decades and self-employment has become much more common. But if you're self-employed, getting approved for a mortgage can be more difficult than for the traditional wage-earning or salaried employee.

As a self-employed person, it’s in your best interest to minimize your reported income so you pay less tax. Unfortunately this can work against you when it comes time to apply for a mortgage. The lower your income, the less you typically qualify for when applying for financing.

So what can you do to help yourself get approved and into your new home? Here are some helpful tips.

Provide income verification

To secure mortgage insurance from the Canada Mortgage and Housing Corporation (CMHC), you will need verify how long your business has been in operation and show a record of your income for the previous 24 months. Some of the documents required for verifying your business and income include:

• Notice of Assessment 
• Business credit reports
• GST returns
• Active business account statement
• Financial statements accompanied by a Review Engagement Report signed by a practicing accountant
• Business license or articles of incorporation
• Audited financial statements

Visit the CMHC for more details on documentation and current requirements. Having this information available when you apply can strengthen your application.

Support your mortgage application with a strong credit score

Your credit score is another important consideration. Pay your bills when they’re due, keep your credit obligations clean, and lift your credit score as high as possible. You should also resolve any credit issues before you apply.

Filing your taxes on time and paying any taxes owed are also important, especially because your Notice of Assessment can be used for income validation.

Reduce your debt-to-income ratio

The higher your debt, the larger the portion of your income needed to service it. As your debt-to-income ratio increases, your ability to cover your payments falls. Lowering, or keeping your debt low by paying off some smaller loans will go a long way to helping you qualify for a mortgage.

Have cash reserves on hand to cover mortgage payments

It’s no secret that your income can fluctuate if you’re self-employed. Contracts and available work can vary, and there may be periods of time when incoming cash is reduced. Building two months, or more, of mortgage and other bill payments in cash reserves may help you qualify.

Get help from your credit union

If you’re self-employed, a credit union may be your best option for mortgage approval, because they can be more flexible than big banks in structuring your mortgage. Credit unions understand that you incur extra costs to earn income, so they will typically add an extra 15% to your reported income when calculating your mortgage eligibility. Doing this helps you qualify based on a more accurate picture of your true earning power.

Our mortgage specialists at BlueShore Financial can give you valuable guidance and insight so you can:

• Apply based on your true earning power.
• Get a competitive mortgage rate to maximize your purchasing power.
• Finance the purchase of a new home, renew your existing mortgage, or borrow against your home equity.
• Qualify for a mortgage of up to 95% of your home’s value.
• Select the appropriate mortgage solution based on your circumstances, with options for amortization periods of up to 30 years, if you have a down payment of 20% or more.

Contacting a financial advisor at your credit union is a great place to start, and developing a long-term relationship with your credit union can help. The more we understand your business and finances, the better we can understand your ability to service your debt and get you the mortgage you deserve.