Mortgages for self-employed

It is no longer as easy as it once was for the self-employed to obtain mortgage financing.

A few years ago, you could tell your banker how much you made, look them in the eye and then promise you would make your payments. As long as you had a great credit rating, that was good enough then, but not any longer.

Now, you have to provide a whole lot of paperwork and actually prove that you have the ability to make your payments.

My best piece of advice for someone who is self-employed and looking to obtain a mortgage whether it is to purchase a property for the first time or moving up, refinancing a mortgage or looking to purchase an investment property is be prepared.

Here are a few pointers that could make the process go smoother:

• Start early. Meet with your mortgage broker well in advance to discuss what is required to obtain a pre-approval for your financing.
• Ensure that all your taxes are filed and that you don’t owe anything to the CRA. You will need your last two years Notice of Assessments from the CRA at a minimum.
• The larger the down payment, the better. Lenders want to see that you have upfront equity. You must have a minimum of five per cent of your own funds and a minimum 10% down payment.
• Have on hand your GST return, business licence (if you don’t have one, get one.) and the Articles of Incorporation for your company.
• You will need your last two to three years T1 Generals which must be prepared by an accountant.
• Declare a reasonable income for your profession on your tax return. You might suggest to your accountant that they have a conversation with your mortgage broker if you are considering mortgage financing.

You will want to pass along this note to your accountant – the creative accounting methods used to reduce the amount of personal income tax that you pay is now hindering your ability to obtain mortgage financing. 

If the income you report on your tax return is low, you are going to have to work harder to justify to a lender that you have the ability to qualify for a mortgage.

An example of that is dividend income. It might be a great idea for tax purposes but it’s a bad idea if you will be requiring mortgage financing.

Most lenders consider dividend income as a one-off bonus and will reduce your qualifying income by that amount. If there is a history of dividend income we may be able to request an exception from the lender but I wouldn’t count on it.

There has been general tightening with all lending guidelines and also some extreme changes. Because of all the changes it is that much more important that you work with an experienced mortgage broker.

You may have to work a little harder and provide more documentation, but there are still many options available to the self-employed, so please give me a call 888-561-2679 to ensure that you are in the very best position when it comes time to arrange your mortgage financing.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.