How self-employed Canadians can qualify for a mortgage

If you’re Canadian and you own and operate a business, you might be wondering if it’s possible for you to get a mortgage. While many self-employed people believe this is out of reach, the answer is yes. However, there are some additional details that you need to know to make this process as seamless as possible.

Most traditional banks are harder on self-employed individuals because they do not understand the unique needs of these borrowers. Our team at Homewise specifically collaborates with more than 30 banks and lenders so we are able to serve all Canadians, regardless of their circumstances, including those who are entrepreneurs, run their own businesses, or are just self-employed in the industry they work within. Despite common misconceptions, there are a set of things self-employed Canadians can do to make qualifying for a mortgage a seamless, stress-free process.

1. Get your documents in order

If you’re self-employed, being organized and prepared is crucial to proving your eligibility for a mortgage. All mortgage applicants need to provide basic documentation, such as proof of ID, a T1 General, T4, Notice of Assessment, pay stubs and their credit report. However, if you’re self-employed, some additional documents are necessary to demonstrate the legitimacy of your business and that your income is stable. Having these documents ready can streamline the mortgage approval process and improve your overall chances of getting approved. Having these documents in order will help streamline the process and demonstrate to lenders that you are a reliable borrower.

• Proof of self-employment: Provide your business registration and/or articles of incorporation to establish the legal status of your business.
• Additional tax documents: If applicable, provide T4A slips that show income earned and any deductions for the year.
• Business and financial statements: Prepare profit and loss statements, income statements, and balance sheets for the past two years.
• Bank statements: Submit recent personal and business bank statements to showcase cash flow and account balances.
• Client contracts and invoices: Include contracts with clients and recent invoices to demonstrate ongoing or future income.

2. Verify your income for a minimum of two years

One of the biggest challenges for self-employed individuals is proving to lenders that they have a stable source of income. Typically, lenders require at least two to three years of tax and income documents outlined above and will often assess your eligibility based on the lowest income year if they notice that your income fluctuates from one year to the next. If your earnings vary from year to year, this can significantly limit borrowing potential. At Homewise, our dedicated mortgage advisors work with lenders who offer “stated income” programs, helping borrowers apply for a mortgage without traditional income verification methods to maximize their home affordability.

3. Keep a strong credit score

When you’re self-employed, lenders often have higher expectations since self-employed income is often perceived as less predictable. To meet and exceed these expectations, it’s crucial for self-employed borrowers to maintain a strong credit score by keeping debt low and making any and all payments on time. It is also advisable to regularly monitor your credit report for errors and address any discrepancies promptly to improve your creditworthiness. Keeping a strong credit score can help mitigate some of the uncertainties associated with fluctuating income and enhance your eligibility in the eyes of lenders.

4. Shop around

Many self-employed Canadians get discouraged if they get turned down by their bank and don’t meet their lending criteria, which often leads them to believing they will never qualify for a mortgage. Shopping around with brokers, or a company such as ours at Homewise that works with multiple lenders, is a great way to not only determine which lenders will approve you, but also what your best options are for rates and features.

If you’re self-employed, there is no reason to be discouraged from applying for a mortgage and buying your dream home. With the right preparation, documentation and team of dedicated mortgage advisors such as ours at Homewise, you can be well-positioned to navigate the mortgage approval process and get the best mortgage that fits your circumstances.