The Greenhouse
by Pine

Are you self-employed? You can still qualify for a mortgage

In this case, the saying is true, you can have it all: your preferred career and the home of your dreams.

You can have it all.

In Canada alone, about 15% of the workforce is considered self-employed. And while being able to work for yourself comes with many perks–you set your schedule, you set your terms–it may also pose a couple obstacles when buying a home. 

Traditionally, most lenders have certain criteria that need to be met in order to get approved. But while you may not have a “conventional employer,” that doesn’t mean you won’t be able to get approved for a mortgage.

In this case, the saying is true, you can have it all: your preferred career and the home of your dreams. 

What is a self-employed mortgage?

If you generally get your income from your own business or freelance gigs, you can potentially qualify for a self-employed mortgage. Despite its name, a self-employed mortgage is the same as a traditional mortgage, however, most lenders may be looking for extra documentation to assess whether they can or can’t loan you the money. 

The main reason is that when you're self-employed, your income is a bit harder to verify. Banks and lenders want to see that you have a steady stream of income coming in, and when you're self-employed, your income may not be as consistent as someone who gets a regular paycheck.

What is considered self-employed

When it comes to self-employment, there are three categories to consider: 

  1. Sole proprietorship: A sole proprietorship is the simplest and most common type of business structure in Canada, where only one person owns and operates the business. The owner keeps all the profits and is responsible for all debts and losses.
  2. Partnership: A partnership is a type of business structure in Canada where two or more people own and operate the business together. The owners share the profits and responsibilities of the business and it is often set up between friends or family members.
  3. Corporation: A corporation is a separate legal entity from its owners in Canada and has the ability to enter into contracts, sue or be sued, and own assets in its own name. The owners of a corporation are referred to as shareholders and they own stock in the company. Corporations are often set up by larger businesses or organizations.

What do you need to apply for a mortgage when self-employed?

As we mentioned earlier, the main challenge with getting a mortgage if you're self-employed is proving that you have a steady stream of income. So, you'll need to be able to show the bank your tax returns, bank statements, and any other documentation that can help prove your income.

The four documents you’ll definitely need if you’re self-employed

It all depends on your lender as to what you might or might not need to provide to get your mortgage approved. However, generally most lenders will 100% ask for the following list: 

  1. Proof of Income: This can be a bit trickier if you're self-employed, but the most important thing is to have at least two years of tax returns on hand. This will show the bank or lender what you've made over the past two years and give them an idea of your income potential.
  1. Business Information: You'll need to provide information about your business, including how long you've been in business, any financial statements related to your business, your business structure (sole proprietorship, partnership, corporation, etc.), and your business license.
  1. Bank Statements: You'll need to provide your personal and business bank statements for the past three to six months. This will give the bank a good idea of your financial situation and help them determine how much money you can afford to borrow.
  1. Proof of Assets: You'll need to provide proof of any assets you have, such as savings accounts, investments, or property. This will help the bank determine your net worth and give them a better idea of your overall financial situation.

Your lender may also require you to provide other pieces of information, like calculating your debt ratios, evidence you’re paying taxes on your salary, like the HST and/or GST, or your business’ revenue or expected revenue for the next few years.

So how can you increase your chances of getting approved for a mortgage?

Prior to applying for a mortgage, you’ll want to make sure that you have a reliable source of income–whether from your business or even a full-time job from before–over the last two years. This will help the lender see that you have a reliable source of income and are able to repay the loan. 

It’s also beneficial to have a good credit score and to pay your bills on time, to increase your chances of getting a great interest rate. 

Collecting your documents ahead of time will also have you well-prepared for when your lender requires them. Again, having your tax returns, financial statements, and proof of income documentation in order will save you time and hassle–and will give your lender easy access to a big-picture view of your financial situation. 

And if you think you’re ready to start your home buying journey, you can apply through Pine’s quick-and-easy application, where one of our mortgage agents will be happy to connect further and answer any questions you might have about securing a mortgage when self-employed. 

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