“Small and medium-sized businesses are the engine of the Canadian economy”, but when it comes to mortgages, it’s hard being self-employed. This is mainly because reducing your taxable income can make it difficult to qualify for the mortgage you want.
With nearly 20% of all income earners in Canada being self-employed (at least part-time), we often wonder why it is so difficult for this growing demographic to obtain a mortgage.
From 2012 on, there were many changes in Canadian mortgage policy. These new policies gave advantages to borrowers whose income came from employment in a stable workplace. If you are self-employed, it’s likely you will face strict policy limits in trying to obtain a mortgage for self-employed from a traditional bank. In some institutions, the rate you will get is higher, and you’ll have to come up with a much larger down payment from your own resources.
The main limitation self-employed clients face today is the fact that income is not always easy to prove. Also, many business owners are motivated to minimize their taxable income and reduce their net income to a level that prevents them from getting a best rate mortgage.
In order to obtain a mortgage for self-employed, most lenders require a personal tax Notice of Assessment from the past two full years, a good credit history and a minimum down payment of 10%. In addition to a personal NOA (Notice of Assessment), you may need to show your business’s financial statements, ongoing business bank statements, Article of Incorporation, source of down payment, and more.
According to current policies, those who are self-employed are restricted to a maximum loan of 90% of property’s value and not 95% like employees. Refinances would be of up to 65%, and not 80%. In some cases, if you wish to refinance, the bank will ask you to take out an expensive insurance policy, even if you meet the 80% of the house value requirement. This is where working with a mortgage broker is to your advantage: we have access to over 40 institutions and can help you get the best rate in the market, even if you’re self-employed or a small business owner. In some cases, we can even help you get a mortgage for self-employed with no premium.