There are more and more self-employed people entering the Canadian market in recent years. The numbers have risen by over one million from 2001. Self-employment also means precarious earnings for many. With lack of steady income, it becomes harder for them to invest in a home. They are among the first to be refused by lenders, especially if they are low paid. However, that doesn’t mean that all doors to a decent mortgage are closed. If you can show reliable records of dependable earnings, you can still be qualified. You just need to prove to the lender that your earnings are sustainable.
Long Established Business: It is easier for lenders to trust you if you have been working for a longer period. If you have been working for less than a couple of years, your case might be a tougher one, but if you have been self-employed for two years or over, it becomes easier for lenders to trust your ability. Situations also vary according to the business structure. Conditions are different for sole traders, contractors, partners, and company directors.
Lenders might urge you to seek the assistance of a certified chartered accountant who has checked your income report to the tax authorities, but you may face a roadblock there. Accountants try to bring down taxes for the self-employed but low taxes might not qualify you for a mortgage. Of course, situations differ case by case. If you have a history of employment before switching to contracting, you may be considered. If you have a record of stable earnings, things might be easier, depending on the amount.
Loan Payment for the Self-Employed
Charges are high for a one-year self-employment record. For two years, you may be asked to pay an interest rate of 2.59% or higher even if you put in a 25% deposit.
- Sole Traders: For sole traders, the rules are based on the level of income increase or decrease over the months. For income increase, lenders calculate the average income from the last couple of years. If the income goes down, lenders will use the last low figures to look at your case. That may make getting a mortgage tougher.
- Contractors: If you are a contractor earning a daily rate, the rate will be multiplied by the number of working days in the year. They will also look at your contract records over the past one or two years.
- Company Directors: If you fall into this category, the calculation will be based on your salary and dividends from the business. Alternatively, your salary will be assessed in addition to the profits held by the company.
Mortgage Solutions
- Mortgage Broker: An experienced mortgage broker is a great help in these matters by being prepared for the high costs that follow. They can guide you on the lender’s intentions and help you land a favourable deal that works for both, if you are eligible. In return there is a high fee for their services.
- Curb Extra Expenses: Since lenders will go through your expenses with a critical eye, it will help you to cut down on luxury expenses to reassure them. The lower your loan amount, the better will be your interest rates.
- Lending Experts, Vancouver: At Lending Experts, our team of highly qualified and experienced mortgage brokers are committed to helping you meet your goals. There are three types of self-employed mortgage options we help you with:
- Stated that requires good credit history and proof of self-employment etc.
- Income Qualifying that requires Revenue Canada “Notices of Assessment” to determine the net income.
- Alternative Income Qualifying where the lender checks the proof of income, bank statements, invoices etc.
We can dispel your fears and help you own a home at the lowest available interest rates. Call us to find out how.
