Self Employed Mortgage for Business Owners or Self-Employed
Self Employed Mortgage
A self-employed mortgage is a residential or a commercial mortgage being inquired or applied by someone who is a business owner or self-employed and looking to purchase, refinance, or switch an existing mortgage. With about 15% of Canadians being self-employed , most of them find it difficult to obtain a self-employed mortgage for a variety of reasons despite earning a reasonable income.
An advantage to being a business owner or self-employed is the ability to write off many personal expenses and ultimately pay less income tax. But the downside is that it can be difficult to prove your actual income because the declared net income on the tax return is lower than the actual income after these deductions. Also, the income of the self-employed can be less predictable. As a result, you may qualify for a lower mortgage amount, or not qualify at all when it comes to applying for a self-employed mortgage.
Despite these shortcomings, it is possible to qualify for a self-employed mortgage designed specifically for business owners and self-employed.
Are you a business owner or self-employed finding it difficult to arrange for a competitively priced self-employed mortgage for your home? Apply today for a self-employed mortgage with Square Capital and get approved.
Prepare Yourself Before Applying for a Self Employed Mortgage
Given the challenges involved to get approval for a self-employed mortgage, as a self-employed mortgage borrower, it is advisable to prepare in advance to make your self-employed mortgage application more attractive to a lender. You can prepare by minimizing the debt, increasing your saving, and maintaining records of your income among others.
Bank Records of Stated Income
As the reported net income on the tax return is lower than the stated income, some lenders might consider if you can provide bank statements containing the income received from your clients as a business or self-employed. It is also important to have a consistent flow of income on a monthly basis to improve the chances of being approved for a self-employed mortgage.
Save for a Bigger Down Payment
Lenders do their due diligence to ensure that the self-employed mortgage they lend is secured. If you contribute a bigger down payment towards your home, the lender will see you as a low-risk borrower. The bigger the down payment you have at the beginning of the self-employed mortgage, the more equity you have in your home and the less likely you are to abandon during a financial crisis. Having a bigger down payment also has the advantage of having a more affordable monthly mortgage payment.
The chances of getting approved for a self-employed mortgage are higher if you have minimal if not no debt at all. Lenders will consider a self-employed applicant with no debt as a low-risk borrower as it will be easier for the borrower to make monthly self-employed mortgage payments.
Improve Your Credit Score
Your credit score plays a crucial role when it comes to applying for a self-employed mortgage. Having a higher credit score also increases your chances of qualifying for better interest rates as your application will be more attractive to a lender. Some of the ways you can increase your credit score include:
- pay off credit card debts
- making minimum payments and bills on time
- not surpassing the credit limit
- ensuring that debts do not go to collections
- do not apply for credit often
Record of Business or Self Employment
Maintaining a strong track record of your business or self-employment helps your business practice as well as becomes valuable while applying for a self-employed mortgage. In order to prove the success of your business or self-employment, it is important to show that your income is consistent. Having a minimum of 2 years of records will increase your chances of approval for a self-employed mortgage.
Last 2 Years of Tax Records
Most self-employed mortgage lenders will ask for the last 2 years of tax return assessments along with other documents.
Contact us today to get approved for a self-employed mortgage.
Documents Required To Get a Self Employed Mortgage
As a self-employed mortgage applicant, providing the right information increases your chances of getting approved for a self-employed mortgage. If you can provide proof of consistent flow of income over a period of time, you might even qualify for a better interest rate or other regular mortgages. Even if you do not have a solid flow of income, it is possible to get approved for a self-employed mortgage.
It is beneficial to provide documentation that you have been in business for or self-employed for at least two years, and show two years’ worth of sound financial and credit management. Other documents a lender might require to process a self-employed mortgage include:
- Business license or article of incorporation
- Proof of principal ownership in the business
- Financial statements for the business
- Notice of Assessment, T4, and T1 General for the last 2 years to confirm of your self-employed status
- Bank statements for the last 6 months to help prove stated income
- Agreements or contracts showing future/past income
- Proof of taxes paid
- Proof of down payment
- Personal credit scores
- Personal identification
- Property details including property tax statement
Contact us today for a free Self-Employed Mortgage consultation.
Down Payment and Refinance Options
Most lenders require a minimum of 10% down payment in order to qualify for a self-employed mortgage. If the most recent yearly income is sound, you might qualify for up to 80% of the value of the property with no default insurance or up to 95% with default insurance for your self-employed mortgage.
In addition, if you are a first-time homebuyer, you can also withdraw up to $35000 from an RRSP to make a down payment under Home Buyer’s Plan (HBP).
With good credit history and enough business income available, you can also refinance your house to access additional money to expand your business or meet other needs. You may be able to finance up to 80% of the appraised value of your home when refinancing using a self-employed mortgage.
Contact us today to determine your eligibility for a Self Employed Mortgage.
Self Employed Mortgage Alternatives
Banks usually have strict income verification processes when it comes to self-employed mortgages. If you cannot access a mortgage from a bank, a more viable option is a private self-employed mortgage from a private lender. Private lenders are less strict with income verification and they take into account the stated income instead of the reported income.
Private lenders are more likely to approve a self-employed mortgage, even with a low income and bad credit, because they consider debt-to-income calculations that add the deduced expenses back to the reported income in the application process. However, a private self-employed mortgage (link to private mortgages) from a private lender can come with a high-interest rate and other fees to compensate for the risk involved. At the same time, it is important to ensure that all the business records are kept up to date and accurate before applying for a private self-employed mortgage as private lenders give more importance to them to validate the business income.
Square Capital Management Inc. has experts who can meet the needs of borrowers taking into account their financial wellbeing in the long run. Contact Square Capital today for a free consultation, to determine your eligibility, and to apply for a private self-employed mortgage. For more information, visit our Private Mortgages page.
Pros and Cons of a Self Employed Mortgage
It is important to understand the advantages and disadvantages of a self-employed mortgage.
Advantages of a Self Employed Mortgage
Availability of Lenders
Due to the attractive returns on a self-employed mortgage, considering the risk involved, there are many private lenders in the market to approve a self-employed mortgage. Lenders know that the house prices are to appreciate over time and they are willing to lend. Unlike banks, private lenders are confident that they can recover their money even when the borrower defaults by selling the property.
Despite the high-interest rates on a self-employed mortgage, investing in a house is a good investment. The house prices have been increasing steadily over the last few decades and are expected to continue in the long run.
Disadvantages of a Self Employed Mortgage
Higher Cost of Borrowing
Due to the challenges involved in proving the income if you are a business owner or self-employed, lenders charge a higher interest rate and additional fees to approve a self-employed mortgage.
Difficulty Involved in Proper Documentation
It takes effort to organize documentation and maintain financial records. You might even have to hire a professional accountant to help you manage your finances.
Chances of Rejection
If the application is rejected for various reasons, it might impact your credit score and decreases your chances of applying for a self-employed mortgage in the near future when your circumstances improve
Chances of Default
Due to the likelihood of income fluctuations as a business owner or self-employed, you might find it difficult to make repayments on a self-employed mortgage if your business does not go as planned or lose your contract as self-employed.
Despite the risks involved in borrowing a self-employed mortgage, with proper financial planning and discipline, buying a home can be a sound investment with a self-employed mortgage in the long run. The discipline of maintaining proper documentation and money management is always a must for a business owner and a self-employed individual regardless of whether they apply for a self-employed mortgage.
Start Your Self Employed Mortgage Pre-Approval
Due to the challenges involved in applying for a self-employed mortgage, Square Capital can help you get the best self-employed mortgage for you. We can help you lock your rate and know exactly how much home you can afford. Start your self-employed mortgage online.
Square Capital works with over 50+ lenders including private lenders to find the right solution for its clients. Contact us today at +1(416) 901-9525 or use our Online Application to apply for a Self Employed Mortgage!
1) May 2019, Study: Self Employed Canadians: Who and Why?, Statistics Canada, https://www150.statcan.gc.ca/n1/pub/71-222-x/71-222-x2019002-eng.htm