How to Get a Mortgage When You're Self-Employed in Hamilton

Being self-employed gives you plenty of freedom.

It can also make some parts of buying a home feel more complicated.

If you own a business, work as a freelancer, operate through a corporation or earn income from multiple sources, your mortgage application may require more documentation than someone receiving a straightforward salary.

That doesn't mean getting a mortgage is impossible.

It means you need to understand what lenders are likely to look at and get organized before you start shopping for a home.

Here are some important things to know.

1. Get Your Financial Documents Organized

When you're self-employed, your income may not be documented in the same way as someone who receives a regular T4.

A lender may ask for documents such as Notices of Assessment, tax returns, business financial statements and other proof of income. The exact requirements vary by lender and your circumstances.

Don't wait until you've found your dream home to start gathering everything.

A conversation with a mortgage professional early in the process can tell you exactly what documentation you'll need.

2. Understand How Your Business Income Is Being Assessed

This is one of the areas where self-employed borrowers need to pay particular attention.

Business owners often have legitimate business expenses and deductions that reduce taxable income.

But the income reported for tax purposes may not always be the same figure a lender uses when assessing your ability to qualify.

CMHC's current self-employed mortgage-insurance program, for example, allows certain eligible business deductions to be added back or allows self-employment income to be grossed up in specified circumstances.

The important point is not to try to manipulate your tax return to qualify for a mortgage.

Instead, understand how your reported income will be interpreted by the lender and discuss the implications with both your accountant and mortgage professional.

3. Don't Assume You Need a Huge Down Payment

This is one area where outdated online advice can be particularly misleading.

There isn't a universal rule saying that self-employed buyers need 35% down.

For eligible homeowner purchases, current CMHC rules allow minimum equity starting at 5% of the first $500,000 and 10% of the portion above $500,000, subject to the applicable program requirements. Self-employed borrowers can potentially qualify for CMHC mortgage insurance under the current CMHC Self-Employed program.

However, your particular lender may require different terms based on your financial circumstances.

Your down payment is only one part of the qualification picture.

4. Your Business History Matters—but There Are Options

A longer-established business can make it easier to demonstrate a consistent history of income.

CMHC currently recommends a minimum of 24 months of business operation or experience in the same line of work for its self-employed program, but it also has provisions for recently self-employed borrowers in certain circumstances.

So if you've only recently become self-employed, don't automatically assume you can't qualify.

Talk to a mortgage professional before ruling yourself out.

5. Keep Your Credit and Debt in Good Shape

Self-employed or not, your overall financial position matters when you're applying for a mortgage.

Lenders can consider your income, debts, credit history, expenses and other financial obligations when assessing your application.

Before applying, review your credit report and make sure the information is accurate.

Also take a close look at your existing debts.

A large car payment, line of credit or credit-card balance can affect how much mortgage financing you qualify for.

6. Get Pre-Approved Before You Start Shopping Seriously

A mortgage pre-approval can give you a much clearer idea of your potential borrowing range.

But remember that a pre-approval is not a guarantee of final mortgage approval. The lender may still need to verify your information and assess the specific property you're purchasing.

For a self-employed buyer, getting this conversation started early can be particularly valuable.

You want to know where you stand before you fall in love with a house.

7. Give Yourself More Time Than You Think You Need

One of the best things a self-employed buyer can do is avoid leaving the financing conversation until the last minute.

Get your documents together.

Talk to a mortgage professional.

Understand how your income is likely to be assessed.

Know your budget.

Then start looking at homes.

The goal isn't simply to find out how much a lender will let you borrow.

It's to understand what you can comfortably afford and then find a home that fits within that number.

Being Self-Employed Doesn't Mean You Can't Buy a Home

The mortgage process may require more documentation when you're self-employed, but being a business owner doesn't automatically prevent you from qualifying.

The rules and lender requirements can vary, so don't rely on a generic number you found online.

Get advice based on your actual financial situation.

If you're self-employed and thinking about buying a home in Hamilton, getting your financing organized before you start your search can make the rest of the process considerably easier.

Sincerely,

Mike McCarthy, MBA
REALTOR®