Self Employed? here is what you need to know.

If you're self-employed and planning to apply for a mortgage in Canada, there are certain considerations you should be aware of. Self-employed individuals may face different challenges compared to those with traditional employment, but with careful planning and documentation, you can increase your chances of securing a mortgage. Here are some key factors to keep in mind:

1. Income Documentation:

   • Lenders will require proof of income to assess your mortgage application. Self-employed individuals often need to provide more extensive documentation than those with traditional employment. This may include financial statements, business tax returns, and Notices of Assessment from the Canada Revenue Agency (CRA).

2. Business Stability:

   • Lenders typically prefer borrowers with stable and established businesses. If your business is relatively new, it might be helpful to demonstrate its growth and viability. Providing a history of profitable operations can strengthen your mortgage application.

3. Credit History:

   • A strong credit history is crucial when applying for a mortgage. Lenders use your credit score to assess your creditworthiness. Ensure that your credit report is accurate and take steps to improve your credit score if necessary.

4. Down Payment:

   • The down payment is a significant factor in mortgage approval. While the minimum down payment is 5%, having a larger down payment can strengthen your application. Saving for a substantial down payment demonstrates financial stability and reduces the lender's risk.

5. Debt-to-Income Ratio:

   • Lenders assess your debt-to-income ratio to ensure you can manage your mortgage payments along with other debts. Be mindful of your existing debts and consider paying down outstanding balances before applying for a mortgage.

6. Stated Income vs. Verified Income:

   • Some self-employed individuals have the option of stating their income rather than providing extensive documentation. However, this may result in a higher interest rate and stricter qualification criteria. Providing verified income documentation is often preferable for obtaining better terms.

7. Work with a Mortgage Broker:

   • Mortgage brokers can be especially helpful for self-employed individuals. They have access to a wide range of lenders and can help match you with those who are more open to working with self-employed applicants.

8. Tax Planning:

   • While minimizing taxable income might be advantageous for income tax purposes, it can impact your mortgage application. Lenders typically consider your net income for mortgage qualification. Discuss your situation with a mortgage professional to find the right balance between tax planning and mortgage eligibility.

9. Keep Finances Separate:

   • Keep your personal and business finances separate. Maintain separate bank accounts for your business and personal expenses. This can help streamline the documentation process for your mortgage application.

10. Consult a Professional:

    • Seek advice from a mortgage broker or financial advisor who specializes in working with self-employed individuals. They can provide guidance on preparing your financial documentation and navigating the mortgage application process.

Being self-employed doesn't disqualify you from obtaining a mortgage, but it does require careful planning and documentation. Start the process early, gather necessary paperwork, and work with professionals who can guide you through the application process.