Self-Employed Mortgages: How to Secure Your Dream Home

I meet self-employed clients every day in Brampton, Toronto, and the GTA who can’t qualify for a mortgage at the major banks, so it is my passion to open doors for as many self-employed clients as possible. I can anticipate the challenges you might face and have access to the best lenders that specialize in self-employed mortgages. It’s also my job to present your situation to lenders to improve your ability to qualify. 

Even though self-employed Canadians are a very reliable customer group, you manage your income to keep taxes low which means you might need to do more to prove your income than someone who gets pay information from their employer. That’s why you should get the best advice possible on how to improve your ability to qualify. With the right knowledge and preparation, self-employed individuals can increase their chances of successfully obtaining a mortgage. 

How big is the self-employed segment of the Canadian workforce?

According to Statistics Canada, there were 2.7 million self-employed workers in Canada in 2020, representing 15.2% of the workforce. In 1990, there were 1.9 million business-for-self Canadians, which means that the number of self-employed workers increased by 42% in 30 years.

However, the COVID-19 pandemic had a significant impact on self-employment in Canada. In 2022, the self-employed segment of the Canadian workforce declined to 13.5%, likely due to the economic slowdown caused by the pandemic. While the self-employed segment of the population continues to recover from the pandemic, entrepreneurial activity remains an important segment of Canada’s labour market, helping to drive long-term economic growth.  

Remember that I am also self-employed, so I understand all the challenges you are facing, and I am committed to working hard on your behalf. Your mortgage financing shouldn’t be one of the many headaches you have to deal with. 

The Challenges of Obtaining a Mortgage as a Self-Employed Individual

The self-employed endured significant challenges during the pandemic and continue to face unique challenges when it comes to obtaining a mortgage. 

Lenders typically consider income stability and consistency when assessing a borrower. However, self-employed borrowers’ income can vary from year to year or even month to month, and money that is kept in the business is not considered personal income. Understandably too the self-employed also write down their income as low as they can to pay the least amount of tax. These income realities don’t help when lenders want income proof. 

Self-employed borrowers must also provide additional documentation to verify their income. Another hurdle is that some lenders want 2 years of self-employment so it can be more challenging if you are recently self-employed. 

Documentation Required

More work must go into document collection for self-employed borrowers. You’ll need to provide some or all these documents:

  1. Articles of incorporation or master business license if not incorporated
  2. Business Number or GST/HST account number
  3. Notice of Assessment and T1 Generals for previous 2 years 
  4. Financial statements and corporation income tax return
  5. Up to 12 months of bank statements and some corresponding invoices
  6. Signed contracts for future work 

Types of Mortgages Available for Self-Employed Individuals

There are various options available and the best one for you will depend on your specific situation. 

Lenders – Traditional Qualifying

Yes, it is possible to get the best A Lender products and rates – from Banks, Credit Unions, National Lenders – with the minimum of 5% down on the first $500,000 and 10% on the rest if the home is under $1M. The best conventional rates may also be available for homes $1M+. This is available to those who can prove their income via their NOAs. Lenders will take a 2-year average and will gross up income by 15% to reflect deductions. All mortgage default insurers are also available to insure when downpayment is less than 20%. 

Or if tax returns don’t reflect true income, A lenders are still possible if the business financial statements and bank statements can prove income. 

Stated-Income Mortgages

Stated-income mortgages are the most common solution for self-employed borrowers. This type of mortgage is exactly as it sounds – you state your income and lenders do not do traditional income verification. They instead review the business bank statements to justify your income declaration and will do a reasonability test, making sure the income makes sense for the industry and your years in business. 

There are two types of stated income mortgages – insured and uninsured. 

Insured Stated Income

Having the mortgage insured by either Sagen or Canada Guaranty means that A rates are possible, but mortgage insurance premiums are higher. CMHC does not insure stated-income mortgages. There are some downsides –

  1. Properties must be less than $1M and the maximum loan value for the Greater Toronto Area is $750,000
  2. You need a minimum of 2 years of business for self, so not available for those newly self-employed
  3. A strong credit profile is required
  4. Must be owner-occupied, although can be 2 units if 1 is owner-occupied
  5. A minimum of 10% down is required with only 5% of that can be gifted

Uninsured Stated Income through B Lenders

This is where most self-employed borrowers get their financing. Why? Income may be too difficult to prove, credit could be poor, the property may be non-owner occupied, or the maximum loan amounts may be too restrictive. 

These mortgages are uninsured so higher downpayments are required (20 – 35%), higher rates apply and typically there will be a lender fee. In most cases, 12 months of bank statements will be required along with some invoices that the lender can match and confirm. 

It comes down to a trade-off – keep taxes low and pay higher rates and fees or pay more taxes and get lower rates. Most want lower taxes!

Private Lenders 

Private lenders are another option when A and B lenders say no. Rates and fees are higher, but this can be the best solution on a short-term basis. 

A Mortgage Broker is Essential!

A mortgage broker is essential to navigate the mortgage process for self-employed individuals. A broker will advise on document collection and improving credit and can present your case to the best lender for your situation.

Obtaining a mortgage as a self-employed individual can be challenging, but with the right preparation and knowledge, and with the right broker guiding you, it is possible. 

Remember too that you are a pro, so you’ll want to use a pro and that’s where I come in! I have years of experience working with self-employed borrowers and have great relationships with the lenders that specialize in self-employed financing. I will handle your mortgage financing details so you can stay focused on your business. I’ll also work around your hectic work schedule. It doesn’t have to be complicated!