Mortgages are becoming simpler for self-employed people.
If you include part-time, one in every five Canadians is self-employed, and the internet will ensure that that number continues to rise every year. It is easier than ever to be your own boss, and a lot of people are seeing the profits from it, but this has always made it harder to get a loan.
Mortgages are no exception to this rule, and self-employed people who are looking to get their hands on one will have to jump through a lot more hoops so that they can do so. One of the challenges in getting a mortgage for the self-employed is that it’s harder to get the necessary proof that lenders will ask for.
Even when you’ve gone through the hassle of getting all of your documentation in order, you still won’t get favorable terms because of the nature of your income. Since being self-employed sees a lot more variance in pay from month to month, a lot of lenders will see too much risk in working with you.
This can often result in worse rates when compared to people who aren’t self-employed, and some institutions may even refuse to work with you if you are your own boss.
I want to make it as easy as possible for people to find the perfect mortgage for their needs, so I have also made sure to consider the self-employed. I have a variety of lenders who are willing to work with self-employed clients, and who understand the nature of working for yourself.
Many of these lenders won’t require concrete proof of yearly income, meaning you won’t need to provide them with a definitive number. A lot of the time, an estimate will suffice when working with lenders who are accustomed to self-employed individuals.
However, it’s not all bad news, as there is a push to make it easier for self-employed Canadians to get mortgages. Let’s look at some of the ways that the mortgage market has improved for potential clients who are self-employed.
Self-Employed Mortgage Requirements
If you want to get a mortgage when you’re self-employed, then you’ll need to have a few things in order. First, you’ll need proof of income, and if you can prove that your revenue stream is stable, then you’ll be a lot more likely to be approved by the lender.
Of course, you’ll need to include all of the other documentation that you would present when looking for a mortgage as well. This means that you’ll have to provide up to two pieces of photo ID, information about your outstanding debts, and you’ll also need to let the lender know about your other assets, like cars, boats, or property.
Self-Employed Mortgage Rules
The rules for lenders dealing with self-employed clients used to be a lot stricter because there wasn’t a specific set of criteria for them. If there aren’t distinct rules for self-employed clients that consider their unique position, it will be a lot harder to get an approval from a lender.
This meant that it was nearly impossible for self-employed people to get loans unless their business was rock-solid and continually growing, which is relatively rare. Let’s take a look at how the rules have changed for the better in Manitoba over the past few years.
Improvements in mortgage for the self-employed
One of the most positive recent developments in mortgage for self-employed clients is the decision of the CMHC to change their criteria for deciding whether lenders should approve someone. There are now additional factors which can be used by lenders to determine whether or not they should provide a loan.
First off, they will consider whether you are self-employed through the acquisition of an established business. If the company already has customers and has a name for itself, then it will be a lot less of a risky proposition for the lender to provide you with a mortgage.
Next, they’ll consider whether or not you have enough cash reserves to pay for the mortgage on a month where business hasn’t been as good to you. While the amount of liquid assets you have played a role in the decision process before, it now allows the lender greater leeway to make the decision.
While lenders would previously only accept sure proof that you’ll make a certain amount of money when determining a mortgage, they may not also account for predictable earnings. If you’ve proven that your business can make enough money in the past, then you’ll be more likely to get a mortgage.
The last new criteria that lenders can consider when approving or declining a loan for a self-employed individual is whether they have previous education or training. If the person is qualified for the field that they’re working in, then that will improve their likelihood of being approved.
Finally, the CMHC also broadened the number of documents that can be used as proof by self-employed clients. These include a notice of assessment with a T1 tax form, a T2125 form, and more.
Self-Employed Mortgage Advice
Getting a mortgage can be complicated enough even if you aren’t self-employed, but if you need some extra help, I’m here to provide consultation and more. I can guide you through the entire process, or I can just give you some advice, depending on what you need.
If you need any help determining whether you can apply for a self-employed mortgage, feel free to get in contact with me. I have years of experience working in the mortgage field, and I’ve had clients in a wide range of employment situations, including the self-employed.