Self Employed and Buying a Home
Many people may believe getting a mortgage while self-employed is difficult or even impossible. The truth is, it’s not! The mortgage approval process for a self-employed individual can be very easy.
If you are self-employed, do you:
Have good credit?
Have access to a down payment (10%)?
Have difficulty proving your income using the traditional methods, or don’t declare enough income?
If you’re missing one of these three criteria, we recommend reading further or scheduling an appointment with Devin or Wes at Your Mortgage Link to talk about how we can work together to help you achieve homeownership.
There are many rumors circulating the wrong idea about self-employed programs being offered. Here are a few statements which lack information:
“You must be self-employed for a minimum of two years before being considered for a mortgage”
If you’ve been in the same line of work for more than 2 years, regardless of if you were self-employed in the past or not, you may qualify for a mortgage. For example, if you were working for Company “A” for 3 years as a salaried electrician and decide to become a self-employed electrician, you have 3 years of experience in the field.
“You can’t get a mortgage if you declare very little income”
False, even though this statement seems to make sense. If you declare very little income or if you declare decent income but it’s insufficient to support your home’s financing, there is still hope.
The traditional way to qualify a self-employed individual is by using an average income from the last two years in business. As mortgage associates, we have access to a program called “Stated Income”.
This program allows mortgage associates to use a reasonable income to qualify a self-employed worker, even if this income is significantly higher than what you’ve declared last year.
For example: If you are a hairdresser and the average income for a local hairdresser in Saskatoon is $32,000 per year, your stated income can be $32,000 even if you’ve only declared $20,000 last year.
This program is subject to special guidelines:
The income presented must be reasonable compared to the industry. Using the example of the hairdresser above an income of $100,000 would be very unlikely and therefore, the application could be declined, or supporting documents would need to be presented.
You must provide proof that you don’t owe any income tax to the Canadian Revenue Agency. This can be done by providing your most recent NOA (Notice of Assessment) or a signed affidavit.
As Mortgage Associates, we deal with many different people in various financial situations. If you are a self-employed worker, there are options offered to obtain a mortgage. Just keep in mind that great credit and access to a down payment are crucial for these programs to work.
