Mortgages for Self-employed Individuals
Before granting a mortgage, a lender wants to be sure that the borrower has the ability to pay back the money. To check on this, a lender will ask for proof of income from an individual’s employer. This is not an issue if you’re employed by someone else. But what if you’re self-employed?
Self-employed Canadians can still get mortgages, just like everyone else. But they do have to provide more information than others.
Information you must provide
Whereas mortgage applicants employed by a company or government can simply show pay stubs to prove their level of income, this isn’t feasible if you’re self-employed. However, one way to prove your income to a lender is to produce copies of your most recent notices of assessment from the Canada Revenue Agency (CRA). Usually, a lender will ask for three years’ worth of these during the mortgage application process.
If you can show these notices to the lender, they’ll typically be willing to give you the same mortgage rate as Canadians who aren’t self-employed. If you don’t have the notices of assessment, you may still be able to qualify for a mortgage, but you’ll probably need to make a down payment of 10% or more.
Notices of assessment aren’t the only documentation a lender may ask to see. Here’s a list of other information you may be required to produce:
- Your company’s most recent financial statements
- Proof that the down payment you have wasn’t gifted
- Copies of contracts showing future revenue for your business
- Proof that you are up to date on your GST/HST payments
- Personal and business credit scores and reports
As with those who aren’t self-employed, Canadians who are their own boss must purchase mortgage default insurance if they can’t make a minimum down payment of 20%. This insurance protects the lender if you fail to make your mortgage payments. Mortgage default insurance premiums are lower for Canadians who can show proof of income. But if you can’t show proof of income, your premiums are higher and you must make a down payment of at least 10%.