How can self-employed Canadians qualify for a mortgage?
Everyone’s income is checked when they apply for a mortgage. Unfortunately, some traditional banks might not be so accepting of income from a small business owner, commissioned employee or sole proprietor.
We will discuss the paperwork that a self-employed mortgage applicant should prepare. Although it is more difficult for the self-employed to qualify, it is not impossible when you work with private mortgage brokers. Here is your overview of the requirements for applying for a mortgage when you’re self-employed.
Independent Income Sources
Stats Canada listed 1,140,000 small businesses in our country (categorized as having less than 100 employees). There were 2,750,000 self-employed, as of 2014. Independent income earners are vital to our society.
Running your own business can be exciting, challenging and fulfilling. You need to manage your budget, demonstrating a higher level of financial responsibility than salaried employees.
Due to being able to deduct some of your business expenses (i.e. company cars), you have a distinct tax advantage. This financial responsibility and tax benefit can enable you to get the best mortgage in Alberta. But first, you need to find the right private mortgage lenders who will consider these.
Traditional banks prefer salaried employees.
Some traditional banks don’t like to accept self-employed mortgage applications. Older financial institutions might have become “set in their ways,” creating rigid income requirements based on salaried employee characteristics. They believe that salaried employee income is easier to verify, more consistent and reliable.
Do large banks prefer mortgages from salaried employees because they have salaried employees too? Have they become used to “pushing paperwork” around, lacking the ability to handle the variety of self-employed income sources? These rigid income requirements have created a banking bias against the self-employed seeking mortgages.
Self Employed Mortgage Challenges
You might not have the longevity or paperwork that a large corporation has. Your commission might be more difficult to track. Traditional banks don’t deem commission income to be as reliable.
Of course in the real world, certain industries are tailored for commisioned employees, small business owners or sole proprietorships. You can make a very healthy income – you can afford a housing loan.
Banks prefer salaried employees. That is their market niche. But, our private mortgage brokers have created more flexible requirements for the self-employed.
We will explain which documents our mortgage brokers want to see when you apply for a mortgage in Edmonton. We will start with sole proprietorships.
Sole Proprietors
Sole proprietorships must have at least 2 years of income history to qualify for an insured mortgage (less than 20% down payment). Mortgage brokers will average your income over the last 2 years for qualification purposes. If you have less than two years of income, then you must qualify for “Stated Income Deals,” and you must be able to afford at least a 20% down payment.
Private mortgage brokers want you to be current and have no tax arrears. It is essential for you to have claimed your income on your yearly tax returns. Only claimed income could be used to qualify for mortgage applications; unclaimed cash payments are not allowed. One owner operations should hire a third-party certified accountant to prepare these documents:
- Notice of Assessments
- T1 Generals
- Statement of Business Activities
If you have specific business expenses (i.e. car loans), these can be written off from personal liabilities. You must provide proper documentation. Some mortgage lenders will allow a 15% gross-up of your Line 150 Total Income.
Commissioned Employees
Commissioned workers have more work hour flexibility, no income ceiling and less of a threat of being made redundant. Mortgage brokers will take a 2 year average of your income in the same job field for an insured mortgage. If you have less than 2 years, then “Stated Income Deals” might be available, but you must have more than the 20% down payment.
Prepare your Notice of Assessments and T4 Generals for the mortgage application. Some lenders will allow for a 15% gross-up of your Line 150 Total Income when you apply for a mortgage in Edmonton. Mortgage brokers might accept 50% or 100% of your commissions as income.
Incorporated Companies
Do you run an incorporated company? For some reason, traditional banks don’t really like providing loans to those who run their own businesses. But, our private mortgage brokers appreciate your self-reliance.
You will need 2 years of completed business financials for an insured mortgage. If you have less than 2 years income, then you might be able to qualify for “Stated Income Deals” – you must provide at least a 20% down payment. Prepare these documents:
- Articles of Incorporation
- T1 Generals
- Notice of Assessment
Some brokers will allow for a 15% gross up that includes dividends. Also, if you have the proof, certain lenders may allow the exclusion of personal liabilities, if paid from the company account.
Small Business Owner Tax Advantages
While other mortgage applicants must prove their creditworthiness, the successful business owner has already shown that he can handle a budget. We, at Advantage Mortgage, give you credit for your hard work.
Moreover, your tax benefits could be the deciding factor in qualifying for a mortgage in Alberta. The ability to expense your personal liabilities can improve your financial status. Some of our mortgage brokers can use these tax benefits to your advantage.
Each applicant is different with different paperwork, in hand. We are more flexible with loan applications, creating rules that you can satisfy. We can use “Stated Income” if there are difficulties proving your income.
While banks see negatives, we see positives. Our goal as private mortgage brokers is to customize a loan package that fits your needs. We tailor mortgages to your application characteristics.
Best Self Employed Mortgages
No housing loan applicant is going to be perfect. Our goal is to review your income documents to see if you are a good credit risk. We create rules that you can satisfy.
Unlike traditional banks, Advantage Mortgage considers the full depth of your mortgage application. We are not stuck in a box. We think outside the box and provide you with documentation requirements that you can satisfy, including “Stated Income Deals.”
We, at Advantage Mortgage, allow you to compare offers by multiple mortgage brokers. Some of our mortgage brokers specialize in self-employed mortgages, just like yours. The self-employed are our market niche.
Our lenders for the self-employed understand your business model. We know what paperwork you have and don’t have. We can identify business owners, sole proprietors and commission earners who are good credit risks.
Many business owners earn very healthy incomes. We value your business. If you have been successful running your own business, then you have shown your financial responsibility. That is your advantage.
Our Edmonton mortgage brokers have access to multiple lenders who can find the right financing for your new home. That is our advantage at Advantage Mortgage.