One in six (16%) of working Canadians are self-employed, and the rules for obtaining a mortgage are different.
Yes, self-employed individuals in Canada often face unique challenges when applying for a mortgage compared to traditionally employed individuals. Here are some important considerations for self-employed borrowers:
- Income Verification: Lenders typically require more documentation to confirm income. This might include personal tax returns for the last two years, notices of assessment from the Canada Revenue Agency (CRA), and sometimes financial statements for the business.
- Stability of Income: Lenders may evaluate the stability and consistency of your income over time. A longer self-employment history (ideally two to three years) can work in your favor.
- Higher Down Payment Requirements: Some lenders may require a higher down payment from self-employed borrowers to mitigate risk, especially if income is variable.
- Credit Score: Maintaining a good credit score is crucial, as it will heavily influence the mortgage terms and interest rates offered to you.
- Debt-to-Income Ratio: Lenders will assess your debt-to-income ratio, which includes your business income and any personal debts you may have.
- Alternative Lenders: If traditional lenders present challenges, alternative lenders may offer options, although they might come with higher interest rates.
- Pre-Approval: Seeking pre-approval can provide clarity on what you can afford and identify any potential issues early in the process.
If you’re self-employed and considering buying a home, working with a mortgage broker like myself who understands the self-employment landscape can be beneficial. We can help you navigate the requirements and find suitable lenders.