As a self-employed individual, you may find it challenging to obtain a mortgage compared to those with traditional employment. However, with the right knowledge and preparation, you can successfully secure a mortgage and achieve your homeownership goals.
In this guide, we will walk you through the steps of applying for a mortgage as a self-employed person in Canada. We will cover the specific requirements and documents needed, as well as tips to improve your chances of approval. So let’s dive in!
Understanding Self-Employed Mortgages
Firstly, it’s essential to understand what exactly is meant by a self-employed mortgage. In simple terms, it refers to a mortgage designed for individuals who are self-employed and do not have a traditional salary or income structure. These mortgages take into account the unique financial circumstances of self-employed individuals, such as irregular income streams and business expenses.
Requirements for Self-Employed Mortgages
Before applying for a mortgage, it’s crucial to ensure that you meet the requirements set by lenders. While specific requirements may vary from lender to lender, there are some general requirements that all self-employed individuals should be aware of.
- Proof of income: As a self-employed person, you will need to provide proof of your income through your business financial statements, tax returns, and bank statements. Lenders typically look for consistent and stable income over the past two to three years.
- Good credit score: Your credit score is an essential factor in determining your mortgage eligibility and interest rates. Make sure to maintain a good credit score by paying bills on time and keeping debt levels low.
- Down payment: Just like traditional mortgages, you will need to have a down payment when applying for a self-employed mortgage. The minimum required down payment in Canada is 5% of the purchase price.
- Business stability: Lenders want to see that your business has been established for at least two years and is generating steady income. They may also ask for proof of ongoing contracts or future income projections.
- Debt-to-income ratio: This refers to the percentage of your monthly income that goes towards paying off debt obligations. Lenders typically prefer a debt-to-income ratio of 43% or lower.
- Savings and assets: Self-employed individuals should have some savings and assets to fall back on in case their business experiences a downturn. Lenders may require proof of these savings as an added layer of financial stability.
How to Apply
The application process for a self-employed mortgage is similar to that of a traditional mortgage. You will need to gather all necessary documents and provide them to the lender, including:
- Personal identification (e.g. government-issued ID)
- Proof of income (e.g. tax returns, bank statements, business financial statements)
- Proof of assets (e.g. savings accounts, investments)
Once you have submitted your application, it may take longer for lenders to review and approve due to the additional documentation required.
Tips for Getting Approved
Getting approved for a self-employed mortgage can be a bit more challenging than traditional mortgages, but here are some tips that can increase your chances of success:
- Keep accurate and detailed financial records for your business
- Maintain a good credit score by paying bills on time and keeping debt levels low
- Save up for a larger down payment to reduce the risk for lenders
- Be prepared to provide additional documentation or explanations to support your income and business stability
- Consider working with a mortgage broker who has experience in dealing with self-employed individuals and can help you find suitable lenders.
Being self-employed does not necessarily mean you cannot qualify for a mortgage. With careful planning, good record keeping, and strong financial stability, you can increase your chances of getting approved for a self-employed mortgage. Remember to also seek the help of a professional, such as a mortgage broker in Toronto, who can guide you through the process and help you find the best options for your unique situation.
Get in Touch with Mortgage Squad Today
At Mortgage Squad, we have extensive experience in helping self-employed individuals secure mortgages. We understand the challenges and complexities of being self-employed and can provide personalized solutions to meet your specific needs. Our team of knowledgeable mortgage brokers in Toronto will work with you every step of the way to ensure a smooth and successful mortgage application process. Contact us today to learn more about our services or to schedule a consultation.
