More Canadians are opting for businesses, entrepreneurship, freelancing and other self-employment paths with statistics showing that about 20% of all working class in Canada is self-employed. With such kind of growth, it is often surprising that it is hard for this demographic to qualify for a mortgage.
Reasons Mortgage Qualification Is Hard For the Self-Employed
Five years ago, things used to be less stringent for the self-employed person when it came to self-employed mortgages. Most lending institutions would give mortgage without hesitation as long as you had a credit score of at least 680.
After the global economic turmoil, the Office of the Superintendent of Financial Institutions (OSFI) decided to take action. This it did by introducing the strict Guideline B-20. Because of these measures, the self-employed worker in Canada has found it difficult to get mortgage approval since the year 2012.
So, how can you make it easier to buy a house without having to forego the benefits that come with self-employment? Here are some Ways to Increase Self-Employed Mortgage Success.
Ways To Make the Process Simpler and Increase Mortgage Success
- Prepare Financials And Tax Returns For Two Years
Some of the most critical elements for consideration for mortgage application include financial documents and tax returns. In addition, it is advisable to portray to the lender that you have a steady income by providing bank statements.
Sometimes, getting accounts for two years is not so easy. In spite of that, you can still get mortgage from various lenders in Canada. Remember that not all lenders are on the high street, so survey all the options available.
2. Update your Tax Status
Lenders check to see if mortgage applicants have any issues with sales tax and income tax returns. In case you owe the taxman, it is important to clear the debt first because it can ruin your chances of getting a mortgage.
3. Consider Business Incorporation
Lenders also tend to prefer mortgage applicants that have steady incomes. Sole proprietorships and unincorporated businesses may not guarantee a steady salary. Incorporating your business renders you an employee and goes a long way in enhancing your chances of getting consideration for mortgage application.
4. Give The Lender As Much Detail As Possible
Stated income loans were the norm in Canada prior to the bust in 2008. However, introduction of new regulations made such loans unpopular with lenders. Although there may be a few lenders ready to offer a stated income loan, it helps to be armed with a paper trail showing your earnings and sources.
Some important information to provide to the lender includes breakeven points, monthly expenses, and monthly income. In line with this, the borrower may need the following documents:
- Proof of Goods and Services Tax (GST) and Harmonized Sales Tax (HST) payment
- Business and personal credit scores
- Contracts to estimate your income in the coming years
- Article of Incorporation
The level of disclosure required may differ from one lender to another. Apart from requesting for documentation evidence, some lenders may also analyze your industry before making their decision.
5. Find an Experienced Mortgage Broker
Overall, your relationship with mortgage lenders is likely to be poor if you are a self-employed worker in Canada. Apart from preparing your paperwork, it is advisable to link with a reputable mortgage broker in your area-this may be all that you need to start building a good reputation and increasing your chances of securing a mortgage. Visit the mortgage broker section on CompareMyRates.ca to jumpstart your journey to mortgage qualification and increase your chances of a successful Self-Employed Mortgage, plus find best mortgage rates.