Mortgages for the Self Employed

There is no single method used by every mortgage lender. How your income is assessed can depend on whether you operate as a sole proprietor, partnership or incorporated business, how long you have been self-employed, your tax returns, business financials and the mortgage program being considered.

Some lenders may primarily use income reported on your tax documents. Certain mortgage programs may also allow eligible business expenses to be added back or income to be adjusted when assessing a self-employed application.

The important step is to review your actual business and personal financial documents before deciding how much mortgage you may qualify for. Two lenders can look at the same self-employed borrower differently.

The documents required depend on the lender and your business structure. Common documents can include personal income tax returns, Canada Revenue Agency Notices of Assessment, business financial statements, business bank statements, GST returns, a business licence or articles of incorporation.

A lender may also request documents that confirm how long the business has been operating, where your down payment is coming from, your current debts and the financial stability of the business.

For a mortgage pre-approval, having your tax and business records available early can help determine which lenders and mortgage programs are realistic before you make an offer on a property.

Not necessarily. Two years of business history is commonly useful because it gives a lender a stronger record of income and business stability. CMHC currently recommends a minimum of 24 months operating the business or experience in the same line of work for its self-employed mortgage insurance program.

There can also be options for borrowers who have been self-employed for less than two years. Factors such as previous experience in the same industry, professional training, signed contracts, predictable earnings, cash reserves, credit history and the purchase of an established business may help support an application.

If you recently moved from employment into self-employment, it is worth reviewing the application before assuming you have to wait two full years.

They can. Many business owners legitimately deduct expenses to reduce taxable income. The challenge is that a lower taxable income can also make the income shown on your tax return look lower for mortgage qualification purposes.

That does not automatically mean you cannot qualify. Some lenders and insured mortgage programs have methods for assessing self-employed income that may recognize certain eligible deductions or use additional business documentation.

This is one reason it can be useful to review your mortgage plans before making major financial or tax decisions. Your accountant's goal of managing taxable income and a mortgage lender's goal of verifying sufficient income are related, but they are not always the same.

Possibly. A low taxable income can make qualification with some traditional lenders more difficult, but it does not mean every lender will assess your application in exactly the same way.

Depending on your circumstances, a mortgage broker may be able to review options from traditional lenders, alternative lenders or private lenders. The lender may consider factors such as business history, cash flow, credit, down payment or home equity, property type and the documentation available to support your actual income.

Alternative financing can have different rates, fees and qualification requirements, so the goal should be to find the most suitable option available rather than simply looking for a lender willing to approve the application.

If you are self-employed in Nanaimo, Parksville, Nanoose, Ladysmith, Victoria or elsewhere on Vancouver Island, reviewing your income documents before applying can help identify which mortgage options are worth considering.