Securing a mortgage can be a challenging task for anyone, but for self-employed individuals in Canada, the process can come with its own set of challenges. The fluctuating nature of self-employed income often leaves many wondering about their eligibility for a mortgage. In this article, we’ll explore the mortgage options available for self-employed applicants in Canada, providing insights into the avenues they can explore to make their dream of homeownership a reality.

  1. Stated Income Mortgages: One option that self-employed individuals can consider is a stated income mortgage. With this type of mortgage, applicants provide a statement declaring their income. While this might reduce the paperwork involved, it often comes with higher interest rates and may require a larger down payment.
  2. Business-for-Self (BFS) Mortgages: Tailored for entrepreneurs and self-employed professionals, BFS mortgages take a holistic approach to income assessment. Lenders consider various income sources, including business earnings, dividends, and rental income. This can be a more inclusive option for those with diverse income streams.
  3. Bank Statement Programs: For those who may not have traditional income verification documents, some lenders offer bank statement programs. In this approach, lenders analyze bank statements to assess cash flow and determine eligibility. While this can streamline the process, interest rates may be higher.
  4. Credit Unions: Credit unions often provide a more personalized approach to mortgage lending. They may be more flexible in considering non-traditional income sources, making them a viable option for self-employed individuals seeking a mortgage. Exploring credit union offerings could reveal more accommodating terms.
  5. Private Lenders: In some cases, self-employed individuals may turn to private lenders for mortgage financing. While private lenders may offer more flexibility in their criteria, it’s essential to be aware that this often comes with higher interest rates and less favorable terms.
  6. Co-Signer or Guarantor: If your individual income falls short of the mortgage requirements, having a co-signer or guarantor with a stable income can bolster your application. This additional support can increase your chances of approval and potentially secure better terms.
  7. Alternative Lenders: B lenders, or alternative lenders, specialize in working with borrowers who may not meet traditional lending criteria. These lenders may consider a broader range of factors, making them a viable option for self-employed individuals with unique financial situations.

Here Are Some Tips To Improve Your Chances Of Qualifying As A Self-Employed Individual

  1. Proof of Income: Lenders typically look for stable and reliable income. As a self-employed person, your income might fluctuate, so it’s important to provide proof of consistent earnings. This could be in the form of tax returns (T1 General and Notice of Assessment) for the past two or three years.
  2. Higher Down Payment: Since self-employed individuals are often considered higher-risk, a larger down payment can help. This reduces the lender’s risk and can increase your chances of approval.
  3. Good Credit Score: Maintaining a strong credit score is crucial. Pay your bills on time, keep your credit card balances low, and avoid taking on too much debt. A high credit score can significantly improve your mortgage prospects.
  4. Separate Business and Personal Expenses: Keep your business and personal expenses separate. This makes it easier to demonstrate your personal income and financial stability to lenders.
  5. Debt-to-Income Ratio: Work on reducing your debt-to-income ratio. This ratio measures how much of your income goes towards paying debts. Lower ratios are more favourable in the eyes of lenders.
  6. Financial Statements: Keeping accurate and up-to-date financial statements for your business can help. This not only shows the health of your business but also demonstrates financial responsibility.
  7. Professional Help: Consider hiring an accountant or financial advisor who can help you organize your finances and tax documents in a way that is favorable for mortgage applications.
  8. Explore Different Lenders: Don’t just stick to traditional banks; credit unions and alternative lenders might offer more flexibility for self-employed individuals.
  9. Prepare for Higher Interest Rates: Be prepared that you might be offered a slightly higher interest rate compared to traditionally employed applicants.
  10. Save for Additional Costs: Aside from the down payment, there are other costs involved in buying a home, like closing costs, home inspections, and legal fees. Make sure you have savings to cover these.
  11. Mortgage Broker: A Mortgage Broker can be invaluable as they can navigate the market for you and find lenders who are willing to work with self-employed individuals.
  12. Build a Strong Financial Portfolio: Demonstrating that you have savings, investments, and other assets can strengthen your application.
  13. Long-Term Self-Employment: The longer you have been self-employed, the more credible you appear to lenders. If you have been in business for several years, this can work in your favor.
  14. Be Transparent: Be honest and upfront about your financial situation. Hiding aspects of your financial life can lead to problems down the line.
  15. Understand Your Limits: Be realistic about how much you can afford. Overextending yourself with a mortgage you can’t comfortably pay can lead to financial stress.

Navigating the mortgage landscape as a self-employed individual in Canada requires careful consideration of available options. While challenges exist, the diversity of mortgage products tailored for the self-employed offers hope for those dreaming of homeownership. Consulting with a mortgage broker or financial advisor experienced in working with self-employed individuals is a crucial step to finding the most suitable mortgage option. Stay informed about market conditions, and remember that the path to homeownership, though complex, is navigable with the right guidance.

If you would like some more assistance understanding how to prepare for buying a home as a self-employed individual, please feel free to reach out.