Getting approved for a mortgage as a self-employed individual has gotten significantly harder over the past few years. This is specifically true if you have a lot of write-offs against your income. It is however not impossible to still get a mortgage from a bank.
There are three scenarios that exists for a self-employed individuals. Before we get into details we want to clarify who is considered self-employed under current guidelines:
- Individual person who files taxes as self-employed
- Individual with a business license
- Individual or group of individuals who have incorporated and conduct business under the company (even if they receive a salary from the company)
Mortgages for Self Employed:
First Scenario | Verifiable Income Program
Under this program income used for qualification purposes must be verified by government documentation. In this case the lenders finance you with the the following requirements:
- Minimum 5% down-payment (Insured)
- 20% down-payment (Uninsured)
- Client must be in business for minimum of 2 years
- Last 2 years of Notice of Assessments
- Full T1 Generals
- The lenders will use 2 year average income based on line 150).
- Some lenders will allow to gross up the income by 15% or certain add-backs from expenses on T1 Generals (This is not allowed for incorporated individuals)
- Clients must have excellent credit
Second Scenario | Stated Income Program
If you are incorporated or have a lot of write-offs and need to use more income than what is shown on your Notice of Assessment, you can be qualified under the “Stated Income” program where higher down-payment is needed to be considered. Here we have 3 options for qualification:
- 10% – 34% down-payment (Insured)
- Client must be in business for minimum of 2 years
- Under this option the lenders will consider reviewing T1 generals (for a sole proprietor) and adding back expenses which are considered “soft-cost”
- For incorporated companies, most lenders will consider reviewing corporate financials in order to accept higher income for qualification
- Client must have excellent credit
- 35% down-payment (Uninsured)
- Client must be in business for minimum of 2 years
- Under this option most lenders will not need the client to pay high-ratio mortgage insurance
- For sole proprietor, most lenders will consider using gross business income for qualification
- For incorporated companies, lenders will consider reviewing corporate financials in order to accept higher income for qualification
- Client needs to have decent credit history
Third Scenario | Alternative Lending program
The guidelines for this program are simple. The qualification for this type of mortgage is based on property and down-payment. In most cases there is no income documentation required.
- 20% down-payment
- Client must be in business for minimum of 6 months
- 6 month cash flow/bank statements required to show ability to make payments
- Credit is not a concern
- Higher rates and lender fees will apply
- 25% down-payment
- No Income verification or proof of self-employment required
- Credit is not a concern
- Higher rates and lender fees will apply
As you can see being self-employed does not disqualify you from getting a mortgage. The mortgage lending guidelines are changing all the time and we are always staying updated, so if you have a question or a unique situation, give a call today 1-855-881-1010 and we will be happy to assist you and getting you Approved.