Lenders and the self-employed go together a bit like oil and vinegar. It’s not that small business owners, entrepreneurs and freelance professionals can’t qualify for a mortgage. It’s just that they are deemed more risky and scrutinized more rigorously thanks to their lack of a regular pay cheque.
When the federal government tightened up mortgage rules in 2012, that made it even tougher for the self -employed, the numbers of which have been growing in Canada due to a shaky economy. According to Statistics Canada, in 2011 there were more than 2.6 million Canadians or about 15 per cent of the workforce working for themselves.
Lenders commonly look at average incomes for the field the self-employed applicant is in, comparing it to their earnings and income history. Banks also study tax documents and take a close look at tax write-offs in an attempt to reconcile true income from reported income.
Typically, financial institutions will want the last two or three years of your Notices of Assessment. These spell out your reported income, what you’ve written off and how much you owe in taxes.
Make sure your credit is up to snuff. Check your credit status to find out if you have any negative marks against you that you can correct or improve upon before applying for a mortgage. Pay outstanding income and property taxes and try to pay your bills on time so your credit history stays strong.
Try to have a sizable down payment for your new house. It will likely improve your odds of getting approved and it could help you get a better interest rate. Because your income usually fluctuates from one month to the next, try to build an emergency fund that will also help you qualify for a mortgage.