Getting approved for a self employed mortgage is definitely a more stringent process than that of the ‘employed’ route. The real reason behind this is because of one thing and one thing only – provability. The banks have nothing against people who are self employed, but the banks do have a harder time verifying affordability based on ‘provable income’ with self employed applicants. It is no longer enough to simply declare that you make ‘X’ amount, but rather something must be shown to prove that the income is both legitimate and consistent. In almost all cases through A banks, getting a self employed mortgage requires the review of a combination of the following documents:
- Tax documents (NOA’s, T1 Generals, T4A Slips)
- Business license or other registration/certification documents
- Business or personal bank statements – typically minimum 90 days
- Invoices, contracts, direct deposits, business logs, etc.
- Financial statements: Statement of earnings (income & retained), balance sheets, etc.
If these documents cannot be provided, alternative lenders (B lenders) would still be willing to entertain the deal under their self employed mortgage programs, however down payment requirements change as the maximum loan a B lender will give is typically to 85% (sometimes as high as 90%) of the purchase price (or home value if it is a refinance). In addition to this, you can also expect the rates to be slightly higher as B lenders do not offer the same advertised rates as the registered A banks. With these programs, they will most definitely ask for less documentation as their underwriting criteria is significantly different (also their funds are not insured so you don’t have the big insurance companies tearing deals apart).
If you are attempting to obtain a self employed mortgage through a registered A bank, your tax documents do not necessarily need to show exactly what the insurers needs to make the deal work. It is understood within the industry that applicants who are self employed can take advantage of many tax benefits that employed applicants cannot. What the banks and insurers are seeking is provable income ‘within reason’ of what they need to make the deal work. As an example, if you need $60,000 to make the deal work, but your NOA’s show $50,000, it may be understandable (depending on the nature of your business) that the amount claimed for taxes is within reason of a truly higher amount earned. It’s up to us to prove this to the banks/insurers.
Applicants who are looking for a self employed mortgage are sometimes misguided by the information they hear on a daily basis. They’re lead to believe that it’s like pulling teeth, or otherwise impossible. If you fall into the category of needing a self employed mortgage, simply ask yourself the following questions:
- Do you own a legally registered business? Can you provide a copy of the business license/incorporation?
- Are you up to date on business/personal taxes? Do you have copies of the tax documents to provide?
- Can you show cash flow through business/personal bank statement?
- Have you been in business for at least 2 fiscal years?
- Are you able to provide at least one of the following; invoices, contracts, business logs, financial statements, accountants letter? (not mandatory, but helpful)
If your answer to these questions is ‘YES’, we can likely help you obtain a mortgage! Contact us today to learn how we can help you!