Navigating the mortgage landscape can be challenging, especially for self-employed individuals. While being your own boss has its perks, securing a mortgage when you’re self-employed often requires additional steps. 

This guide will help you understand how to get a mortgage when you’re self-employed, focusing specifically on self-employed mortgages in Ontario.

Determine if You Need a Self-Employed Mortgage

The first step is to determine whether you actually need a self-employed mortgage. This type of mortgage is designed for individuals who do not have a traditional employment structure. If you receive regular paychecks from an employer and have a T4 slip, you probably don’t need a self-employed mortgage. 

However, if you are a freelancer, consultant, small business owner, or work in the gig economy, a self-employed mortgage might be right for you.

Check the Self-Employed Mortgage Requirements

Before you start applying, it’s important to know what lenders are looking for in self-employed mortgage applicants. Here are some common requirements:

1. Proof of Income: Lenders typically require proof of at least two years of self-employed income.
2. Credit Score: A good credit score is crucial. Aim for a score of 650 or higher.
3. Down Payment: Be prepared to make a larger down payment. While traditionally employed individuals might need 5%, self-employed borrowers might need 10-20%.
4. Business Documentation: This can include your business license, articles of incorporation, and GST/HST account number.

Gather Proof of Your Self-Employed Income

Gathering proof of your self-employed income is one of the most critical steps. Here are some documents you might need:

• Tax Returns: Lenders typically require two years of personal and business tax returns.
• Notice of Assessment (NOA): These are essential as they confirm the amount of income you reported to the CRA.
• Financial Statements: Provide income statements and balance sheets for your business.
• Bank Statements: Showing consistent income deposits can help demonstrate your earning stability.

Learn How Much of Your Self-Employed Income Qualifies for a Mortgage

Not all your self-employed income might count toward your mortgage qualification. Lenders often look at your net income after expenses. If you have significant business expenses, this could reduce your qualifying income. Some lenders may also “gross up” your income by adding a certain percentage back, considering self-employed individuals often have non-cash expenses like depreciation.

Understand How Lenders Calculate Self-Employed Income for a Mortgage

Lenders use different methods to calculate your self-employed income. Here’s a simplified overview:

1. Net Income Method: This is the most common method where lenders look at your net income reported on your tax returns.
2. Gross Income Method: Some lenders might add back certain expenses like depreciation or large, one-time purchases to your net income.
3. Stated Income Programs: These programs allow you to state your income based on your business performance, but they require strong credit and a significant down payment.

Compare Loan Options and Shop for the Best Self-Employed Mortgage Lenders

Not all lenders offer the same terms for self-employed mortgages. It’s essential to shop around and compare your options. Here are steps to find the best lender:

1. Research Lenders: Look for lenders who specialize in self-employed mortgages. Banks, credit unions, and mortgage brokers can all be viable options.
2. Compare Rates: Interest rates can vary significantly between lenders. Use online comparison tools to get a sense of the current rates.
3. Consider Terms: Look at the loan terms, including the repayment period, fees, and penalties for early repayment.
4. Get Pre-Approved: A mortgage pre-approval can give you a better idea of how much you can borrow and the interest rate you might receive.

Conclusion

Getting a mortgage when you’re self-employed in Ontario can be more complex than for traditionally employed individuals, but it’s certainly achievable with the right preparation. Remember to determine if you need a self-employed mortgage, check the requirements, gather proof of income, understand how much of your income qualifies, learn how lenders calculate self-employed income, and compare loan options.

For personalized assistance, consider reaching out to professionals like Menon Financial. They specialize in helping self-employed individuals secure mortgages in Ontario. With their expertise, you can navigate the complexities of the mortgage process more smoothly.

Ready to get started on your self-employed mortgage journey? Contact Menon Financial today for expert guidance and to find the best mortgage options tailored to your needs. Don’t let the complexities of being self-employed stand in the way of your dream home.