Self-Employed? What you need to know to get a great mortgage


It doesn’t matter if your office is a garage, a downtown shared space or the front seat of your pickup truck, being your own boss is truly a thing of beauty. Of course, being self-employed comes with a lot of perks like flexible working hours, charting your own destiny, and the allure of a cubicle-free paradise. But, does it seem like the Canadian mortgage products were designed for the typical T4 employee? Unfortunately, often times self-employed Canadians have to work harder to secure a mortgage.

There is some good news however. While securing a great mortgage as a self-employed person can be a bit more challenging, it isn't impossible. In fact, it can be quite easy if it’s done right with experienced Mortgage Advisor.

In addition to already established qualification rules for self-employed specialist with experience more than 2 years, Canada Mortgage and Housing Corporation (CMHC) is making a number of changes aimed at giving lenders more guidance and flexibility:

· It became possible to qualify self-employed borrowers who have been operating their business for less than 24 months, or in the same line of work for less than 24 months such as acquiring an established business and have sufficient cash reserves, predictable earnings and previous training and education;

· Besides, a broader range of documentation options to increase flexibility for satisfying income and employment requirements when qualifying self-employed borrowers was established. Documents that will be accepted are the Notice of Assessment (NOA) accompanied by the T1 General, the CRA Proof of Income Statement and the Statement of Business or Professional Activities (T2125) to support an “add back” approach for grossing up income for sole proprietorship and partnerships.

These enhancements will take effect October 1, 2018.

Not all mortgage lenders are the same. In most cases, the underwriters will allow specific expenses to be added back to the net income when calculating the debt-to-income ratio. Think of a large non-recurrent write-off, depreciations, and depletions. A hefty one-time licensing fee, for instance, can be used to tilt the debt-to-income ratio to your advantage. The trick is to ensure the mortgage professional you are working with thoroughly understands your business, and your business finances so they can align you with a lender who does as well.