September 19, 2022
Buying a dream home or investing your savings in a property is an exciting journey for many of us. Not to forget the anxiety that comes along with it, especially when faced with the technicalities of securing a mortgage and lending options. The process becomes a bit more complex for self-employed. Self-employed borrowers face some drawbacks when applying for a mortgage. Unlike traditional mortgages, self-employed mortgages are tricky as the borrowers have inconsistent earnings, tax deductions, and sometimes excessive claimed expenses on their records. All of this could make the process of securing a mortgage a bit of a hassle. Proving your financial stability along with providing years of various business documentation can be daunting for some.
Types of Lenders in Canada
In Canada, there are three categories of lenders A, B, and Private Lenders. Not all banks, especially A lenders, offer self-employed mortgages that suit the borrowers’ requirements. These A lenders are the six banks of Canada. They have stringent criteria, but if you qualify for a mortgage from one of these six major banks, you'll likely get yourself the best deals in terms of interest rates. Lenders don’t always work for self-employed borrowers, so you may have to look to a B lender. They have less strict criteria, but they have a high-interest rate. The last option is the private lenders. They are independent financial institutions; their criteria are relatively simple, but they offer the highest interest rates of about 7-18%. With a variety of options available and different requirements to please each category of lenders. Canadians who are self-employed, most often manage to acquire mortgages and can provide enough proof.
The main challenge is gathering enough information to present proof of income. The self-employed borrowers have a couple of options. One of those is stated income, so if you have a high enough stated income and secure insurance through the CHMC program, you can get a mortgage. By using this method, you may find a lender who accepts stated income, and in this way, you can secure a higher mortgage amount with the added benefit of saving time instead of waiting for weeks.
You must also know about the documents that may come in handy as you need to prove yourself financially capable of paying your mortgage. Most lenders ask for personal tax Notices of Assessments from the past 2-3 years, but if you cannot provide those, you need to make a minimum 10% down payment and maintain a good credit history. You will also need to provide your business registration number registration, your business financial statement, and the business bank statement. Proof of fully paid HST/GST and evidence that your down payment is not a gift. The proof of the principal owner of the business is also required. If you can provide the previous and potential business contracts for the next couple of years, you can strengthen your case.
If you find all the technicalities mind-boggling, collecting, and filing the paperwork a bit of a nuisance, then you can consult a mortgage broker. They specialize in finding you the mortgage tailored to your needs. They make it hassle-free, get the paperwork done relatively quickly, arrange everything you need to apply for a self-employed mortgage and get you the best deal possible.