Getting approved for a mortgage as a self-employed entrepreneur is possible! While it’s true that proving your income is simpler if you work for a company that provides you with regular pay stubs and a salary, it’s also true that getting a mortgage when you’re self-employed is still an attainable goal. The guidelines are in place, but with a few considerations, you can still fit within them and therefore qualify for a mortgage.
INCOME VERIFICATION
When it comes to documenting your income as a self-employed person, a lender is going to want to see your Notices of Assessment (NOAs) going back a minimum of 2 years. This is the document that the Canadian Revenue Agency (CRA) sends you after you’ve filed your taxes. This document shows that you’re declared earnings, along with how much tax you owe.
Other ways to confirm business activities are a business license or articles of incorporation, but please keep in mind, the level of scrutiny varies from lender to lender.
If you’ve recently launched your own business and have less than 2 years of history then things get a little more involved. If you’re doing the same job as you did at your previous position, lenders may review and possibly accept your income. However, if you quit a salaried position in order to start a completely unrelated business then you’re going to have to put in those 2 years in order to get approved by a regular lender.
There are also lenders who will look at stated income based on your gross income and 35% down payment or 10% down payment with mortgage default insurance (i.e. CMHC). Stated income is just that, you are stating your income based on industry, length of operation, and type of business. The income stated must be reasonable and backed by supporting documentation.
DOWN PAYMENT VERIFICATION
All down payments must be in the account for a minimum of three (3) months and will be verified by the lender. This could be 3 months of bank statements, 3 months of statements showing investment history (including RRSPs), or in the case of a gift from family you would have to provide a signed gift letter and verification of the exact amount on the letter that was deposited into your account.
BE PREPARED
The most important part of getting a mortgage when you’re self-employed is keeping yourself organized. Keep copies of your tax returns and business-related documents in order to streamline the process, and have the conversation about buying a home early (with both your mortgage broker and your accountant) in order to plan out the next few years. Knowing where you’re going and how you’ll get there will make a huge difference.
Sole Proprietor or Partnership
Documentation required
T1 Generals
Statement of Business or Professional Activities
Notice of Assessment
Verification of ownership/partnership with one of the following
- Business license/registration
- Trade license or
- GST registration/returns
Incorporated or Limited Company
Documentation required
T1 Generals
Statement of Business or Professional Activities
Notice of Assessment
Articles of incorporation
Accountant prepared company financials including:
- Balance sheet
- Income statement
- Statement of retained earnings
Bank statements, 6-12 months
Stated Income
Documentation required
Most recent Notice of Assessment
Verification of self employment by one of the following:
- Business license
- Articles of Incorporation
- Two years T1 Generals including Statement of Business or Professional Activities – prepared by a 3rd party
- Audited financial statements for the last 2 years prepared and signed by a Certified Accountant
Stated gross annual business revenue
Business type/profession
Ownership structure