More and more Canadians are leaving the head office for a home office, quitting corporate jobs in order to start their own companies. In fact, statistics show that nearly 20% of all income earners in Canada are now self-employed. Which is fantastic… until you need to apply for an affordable mortgage rate. Securing a mortgage when you own your own company can be difficult, especially if your business is relatively new. Today, lenders want proof of a stable income before considering adding you to their accounts. Here are a few ways to ease the process and increase your chances of qualifying for the best mortgage rates.
Document Every Penny
The most important thing you’ll need to do when preparing for a self-employed mortgage pre-approval is document your income. There are two basic ways that Canadians can do this – declared income and stated income. Declared income is provable via your personal income tax statements. As such, you will need to supply:
- a Notice of Assessment for the past two years
- if the business is incorporated, financial statements for the last two years
- your business license
- two pieces of identification
- a void cheque
- proof of down payment in the form of three months of business account statements or a gift letter
Stated Income/Stated Asset (SISA) mortgages are made without any documentation or bank records to verify income levels. Following the 2008 financial meltdown, banks made some dramatic changes to their lending practices, making it extremely difficult for freelancers to access SISA mortgages. For more information on either method, contact your mortgage broker.
Keep Your Credit in Check
When it comes to securing a mortgage, a good credit history and solid credit score will always work in your favour. A good credit rating demonstrates the ability to manage debt, which is extremely important to a potential lender.
Bump Up Your Bank Account
A big down payment and hefty bank account can help convince a lender that you’re less of a liability when it comes to credit. Since self-employment generally causes income levels to fluctuate from year to year, having a liquid reserve of monies can provide an important financial cushion.
If possible, have a year’s worth of mortgage payments stashed into a savings account. This, along with a sizeable down payment, should help to lower your rate.
Consider a Joint Mortgage
The best way to increase your chances of scoring the best mortgage rate is to take out a joint mortgage with a full-time employee. This steady income should calm any fears that the lender might have, making your self-employed status less of an issue. Lenders normally look favourably on a strong co-applicant, especially if they will be living in the home following the purchase transaction.
If you’re buying the home on your own, consider a co-signer. This is especially useful if your business is new and you are unable to provide the required two years worth of financial documentation.
Talk to a Person
Having a qualified mortgage broker on your side can make a huge difference for self-employed individuals. These experts are familiar with a wide variety of self-employed mortgage options, including non-traditional lending sources. Should you fail to qualify for one type of mortgage, they will be able to guide you towards a difference source, depending on your income and financial stability.
Just because you’re self-employed doesn’t mean you need to give up your dream of becoming a homeowner. Be prepared to show proof of your income and don’t be surprised if you’re offered a slightly higher rate than posted levels. The big upside to being self-employed? The more you work, the more you make. So keep your nose to the grindstone and when it comes time to refinance your mortgage, you’ll likely have enough experience and earnings under your belt to qualify for a more affordable rate.