Self-Employed
Being self employed has many benefits: you often get to make your own schedule, be your own boss, and approve your own vacation time! It may, however, present its challenges in regard to being approved for a mortgage (especially if you’re a first-time home buyer).
Why Do Self-Employed Borrowers Face Challenges Getting Approved?
Wouldn’t Being Self-Employed Imply That I’m More Responsible? Duh.
Yes and no, but not in the eyes of the lenders.
This is for a few reasons:
Being self-employed makes you higher risk to lend to because you often don’t have the same protections as an ‘employee’ (employees generally have a consistent hourly rate and are guaranteed protections if they are terminated)
Individuals who are self-employed are often contractors who can be ‘fired’ from their contract at any time with no recourse for severance (which a regular ‘employee’ would receive). If you’re self-employed but NOT a contractor, you probably own your own business. Owning a business can also be high risk because once again, there is no guarantee on steady income (the economy may dive at any time and your business may fail)
The way you declare your income to the government differs from a person who is an ‘employee’ and receives basic T4 slips. This can sometimes lead to individuals committing mortgage fraud by fudging their numbers in hopes of getting approved by a lender
Luckily there are safeguards in place that a mortgage broker can help you with when applying for a mortgage when you’re self employed!
I KNOW I Can Afford A Mortgage, How Do I Get Approved?
Great question!
If you’re self employed, there are some preparations you can make before applying for your mortgage that will show the lenders you are serious, reliable, and most importantly that you’ll be capable of paying off your debt:
- Provide documents showing that you don’t owe any income taxes
- Offer a sizeable down payment (more than the minimum). This can help impact your lower your amortization period, and/or fixed/variable rates, thus lowering your monthly payments. For an individual who is self employed and potentially ‘higher risk’, having lower mortgage payments means you’re less likely to default on your loan
- Be in good standing with your taxes – have a zero balance on what you owe for GST, HST, and income tax
- Be knowledgeable of basic credit 101 and have an EXCELLENT (or great) credit score.
In addition, having these documents readily available/submitted to your mortgage broker will help keep the process smooth:
- Proof of your business’s registration and financial statements
- A recent Notice of Assessment
- Proof that your down payment derives from your own resources and wasn’t a gift
- Proof of contracts you’ve secured that will help show your forecasted/expected revenue in the near future
Mortgage brokers who have knowledge of the lending industry can be creative and push for mortgage options like alternative B-lending, private lending, or even a stated-income mortgage!
Another Win For Working With A Mortgage Professional – Flexibility!
If you’ve been denied a mortgage by a bank, don’t take it personally!
Banks follow very rigid protocols and are often unable to accommodate applications which don’t fit into their preconstructed boxes.
There are many differences when it comes to banks vs. brokers, and the main one is that a mortgage broker can assess your unique file and discover options that are more likely to get you approved as a self-employed borrower.
You work hard, you deserve a mortgage, and just because you’ve made the decision to be self employed does not mean you should be penalized for it. Let us help! We’d love to help you land your dream home by collecting the RIGHT information, completing the RIGHT applications, and negotiating for the BEST rates on your behalf.
If you have questions regarding your options or need professional assistance for securing your mortgage, reach out to myself, Kyle Benzies (licensed mortgage broker), and I’d be happy get you started on your home equity journey!