At AKAL Mortgages, we understand that self-employed individuals and business owners have unique circumstances when it comes to securing mortgage loans. Because of tax write-offs, their documented incomes tend to appear much lower than they actually are which can create complications during the loan application and approval process.
If you are self-employed, turn to AKAL Mortgages for help securing:
- A mortgage loan
- A loan for home renovations
- Financing for your other personal needs
- Debt consolidation
The following points are suggestions on strategies on how to plan ahead and be prepared when you, as someone who is self-employed, are ready to move forward in arranging a mortgage for property purchase.
- Ask your Mortgage Broker about STATED INCOME. There are options with some lenders to State your income. This is based on you being in the same profession for at least two years previous to being self-employed. The lender looks at the industry and researches the mean income of someone in that same profession within a reasonable amount of time. STATED INCOME is a complicated approach to showing income. However, your Dominion Lending Centres Mortgage Professional will know what questions to ask and how to negotiate this kind of proof of income. Documents such as bank statements, showing consistent deposits, will be requested by the lender.
- BANKRUPTCY: Although some business people see bankruptcy as a viable option to get out of a bad deal and regroup, lenders generally do not like bankruptcy. Nevertheless, some lenders will overlook this if there has been consistent and excellent credit since the time of bankruptcy and you have been fully discharged from the bankruptcy for a specific time period. Make sure you keep ALL Bankruptcy papers easily available along with your discharge papers.
- Be prepared for higher interest rates. Lenders offer discounted rates to those that fit in the “box”. Those that are not conventional are seen as a risk and, therefore, are applied to a higher interest rate. There also could be lender fees attached to the mortgage.
- Offer a larger down payment. Lenders are somewhat handcuffed to the insurer when there is less than 20% down payment on a property purchase. But if you offer more than 20% down payment, depending on the lender, their flexibility increases and it is up to the lender or even the branch if they want to take you on as a client.
- As a last resort, you can do private financing. Even though it is an expensive option, it could result in the mortgage you are looking for. Rates are higher and there will be lender/brokerage fees. However, you could be in a private mortgage for 12 months or even less, whereby giving yourself time to improve your credit (if need be) or topping off a two year self-employed period to set yourself up to show STATED INCOME to the lender. The whole point of private financing is to use it as a short term solution for a long term plan.
FAQ’s about self-employed Mortgages
One among the following should affirm at-least two (2) years of business-for- self tenure:
- Business License
- GST/HST Return Summary
- T1 Generals with statement of business activities attached for a minimum 2 years prepared by an arm’s length third-party
- Audited Financial Statements for the last 2 years, prepared and signed by a CA
- Plus a recent Notice of Assessment or a signed affidavit by the borrower(s) to confirm no income tax arrears (Note: in the province of Quebec, both federal and provincial NOA’s will be required)
Partnerships are businesses owned by two or more individuals who share the profits or losses of the business operation. The partnership income is reported to Revenue Canada on the standard tax report (T1 General) together with Revenue Canada’s required statement of business or professional activities, which reflects the percentage of the NET income or loss for each partner of the enterprise.