The mortgage process has different criteria if you are self-employed. You will be expected to submit more documentation and qualifying can be challenging. This process can be more difficult, and your income is more complicated than that of salaried employees. Because there is no primary source of income or employer to verify the information, the self-employed borrower must provide proof that their business exists and that they earn a consistent income.
If you are self-employed, you are aware of how frequently your income can fluctuate; thus, demonstrating that it is stable can be especially difficult. Furthermore, as a self-employed worker, mortgage lenders may consider you to be a higher risk. As a result, the criteria and application process may be more rigid than usual, and you’ll need to have a strong financial profile to demonstrate that you’re not a risk.
How to Boost Your Mortgage Application?
Ensure your credit is high enough. In general, mortgage lenders require you to have a credit score of 650 or higher. If you can’t prove a consistent income, then having a high credit score (of 700 or more) helps. Any self-employed borrower may often want to check their credit scores to discover any errors in the report.
What do lenders consider as a self-employed borrower?
Most lenders require that personal tax Notice of Assessment and Matching Tax Returns from the past 2-3 years be included with the mortgage application. Those who can provide this satisfactory proof of income can generally access the same mortgage products and rates as traditional borrowers, while those who cannot at least have a good credit history and provide a minimum down payment of 10%.
Mortgage lenders at banks and credit unions consider a borrower to be self-employed if you:
- Operate a business as a sole proprietor, with a partner, or as a corporation
- Receive at least 25% of your income from the business
- Work on short-term contracts for various employers
- Compensated solely on business income.
You are not self-employed if you receive a regular paycheque from an employer, even if you work part-time for multiple employers. Under these conditions, you’re considered a salaried employee.
What should you have to provide a lender?
As proof you have a viable business, have a good credit rating, and make timely payments on loans and monthly bills, you’ll need to provide the past two years of the following documents:
- Monthly bank statement
- corporate tax return
- business balance sheet
- profit-and-loss statement
- business credit card statements
- credit references or letters from financial institutions.
If you’re a self-employed borrower, you’ll typically need to have a down payment of at least 20 per cent. You’ll also need to provide documents, including:
- A letter from your accountant
- Proof you pay rent on time
- A personal balance sheet showing assets such as stocks, and debts such as credit cards or car loans.
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