They are calling it the great resignation. Thousands of employees in Canada and North America are hitting send on their resignation notice and turning to self-employment, freelancing or starting their own businesses. In fact, Stats Canada reported that in 2021 alone there are over 2.6 million Canadians who are self-employed. The truth is, people have been making their own way through the world as entrepreneurs, business owners or as self-employed individuals for quite some time now and it has always been notoriously difficult for them to walk into a bank and get approved for a mortgage. While this may be a desirable choice, if you are looking to own a home in the near future, it can certainly complicate your chances of getting a mortgage through a traditional bank.
It can be done, but it isn’t easy. We’re going to look at what you will need to make your home ownership goals a reality as someone who is self-employed (and offer you an alternative solution that will make the entire process MUCH easier!)
Regardless of how stable your self-employed income might be, to a traditional lender, it is considered a higher risk because it is variable. From fluctuation in sales to unforeseen business costs, a self-employed income is generally more variable than a fixed employment income, making lenders more concerned if monthly payments will be met.
Income tracking is key when it comes to showing lenders that your income is stable. Many lenders require business income generated from the past 2-3 years. To track your income and expenses, there are many different software programs that you can download, but finding a system that works for you and your business will help you track everything consistently long-term.
Lenders will look primarily at your credit score to determine your reliability for financing. In Canada, a good credit score is anywhere between 660 and 724. A very good credit score is between 725 and 795, and an excellent credit score is anything 760 and above. You will want to position yourself in the best way possible by improving your credit score. You can do this by making your payments on time, building a good credit history, and not allowing debt to pile up.
In Canada, if you are a first-time home buyer, 5% is traditionally required when getting approved for a mortgage. If you are self-employed, it will significantly better your chances if you have more than the traditional 5% saved to put down on a home, to show lenders that you are financially responsible and capable of producing a larger sum of money. That’s why it is suggested that people who are self-employed save 20% for a down payment, instead of the traditional 5%.
Many people who are self-employed are unaware that there is much more paperwork required to get pre-approved for a mortgage. From financial statements to proof that taxes have been paid to proving that your down payment was not gifted, to documents that apply solely to your business and financial situation. It’s a good idea to speak to a Licensed Mortgage Professional to make sure that you have everything that you need. Many people believe that they do not have to speak to a Mortgage Professional until after they have everything that they need, when in fact the opposite is true. A Mortgage Professional can help you set goals, and show you exactly what you need to be in the best position for a mortgage.
Did you know that Faris Team Mortgage Powered by Axiom offers many solutions for those who are self-employed and looking to get a mortgage? You work hard every day for your business, and you don’t want all of that hard-earned money to end up in the hands of someone else.
Our team allows self-employed borrowers to save thousands of dollars each year despite paying slightly higher rates than traditional banks. We understand that not every business owner’s declared income is a true representation of their levels of affordability. That’s why we have lenders who do not qualify you off your filed income but rather based on your business bank account statements and cash flow by way of stated or declared income. This, in turn, allows you to qualify for more, by using higher income levels than you would with a traditional bank.
If you have a business with good overall cash flow, your business and personal taxes are up to date, there are solutions for you outside of the traditional lending scene.
We can offer solutions that the banks won’t.
Click here to book an appointment with one of our Licensed Mortgage Professionals who will help explain your options in plain language and will go full out® to ensure that you can reach your financial goals.
There’s absolutely NO OBLIGATION. Consultations with our team of experts are FREE.