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How to Qualify for a Mortgage When You’re Self-Employed

According to Statistics Canada, in 2015 there were about 2.7 million people self-employed in Canada—and yet, it is still an uphill battle for an entrepreneur to get approved for a mortgage. Unfortunately, it isn’t as straight-forward as a full-time employee, who can simply provide the lender with their annual gross salary. As a self-employed worker, even if you are able to afford a decent mortgage, the rules of the banks are much more severe.

Proof of income is the principal requirement in order to be eligible for a mortgage, and the truth of the matter is that self-employed individuals may have trouble declaring a steady income, which usually varies from year to year.

What the bank requires as proof:

  • The two last years of tax returns
  • Tax deductions related to business

Here is where you have an advantage. How it works is that the bank will either take your average of income of the last two years, or just the second year—whichever is lower. This is helpful for most entrepreneurs who are starting off because it is likely that their first year was not as profitable as their last, which is a good thing; it demonstrates that your business is growing. However, if your second year is slower than your first, then it could indicate that your business is declining, which is something you don’t want the banks to hold against you.

So how do you qualify?

  • Write off fewer expenses. You will pay more taxes, but your income will be higher, making it easier for you to qualify.
  • Hire a certified accountant to take care of your finances. Many banks prefer when self-employed income is handled by a professional.
  • For some, it may be beneficial to declare stated income. This proves that you have been working in the same field for at least two years prior to your entrepreneurial status.
  • If you can, offer a down payment of at least 20%. The bank will be more flexible because they would no longer be tied to the insurer.

If you plan ahead and consult a professional, you will find you have more options than you think. Contact Rose Blankenagel at Mortgage West—The Mortgage Centre. Even if the odds are against you, her insight and expertise will help make that first mortgage possible.