Beyond the Payslip: Qualifying for a Mortgage as a Self-Employed Professional in Canada

The number of self-employed people grew to over 2.6 million in 2022, contributing to more than 15% of the Canadian workforce.

They love their freedom to set schedules and work independently. However, getting a regular mortgage is tough because lenders see them as risky borrowers. Being self-employed doesn’t mean you can’t get a mortgage and own property. You deserve to own property without compromising your entrepreneurial journey. There are many ways to get a mortgage that aligns with your career choices and income instability. Let’s discuss self-employed individuals’ challenges in getting a mortgage and show you solutions.

How do self-employed borrowers prove their income?

Self-employment brings freedom and flexibility, yet it presents a limitation: income validation, particularly when seeking financial support from traditional institutions. Unlike salaried individuals who show their income via T4 slips and recent paystubs, self-employed individuals face a complex process. When approaching a lender for a mortgage as a self-employed individual, prepare a robust portfolio of the following documents to strengthen your application:

  • Tax returns and notices of assessment(NOAs) from the Canada Revenue Agency (CRA) for the last two-to-three years demonstrate your income stability and compliance with Canadian tax regulations.
  • Your business’s financial statements(balance sheet, P&L account, cash flow statement) offer a detailed view of your firm’s financial health.
  • Valid proof of fully paid GST and HST ensures you follow tax obligations and shows how long you have been in business, reflecting your fiscal conduct. Whenever a business makes over $30,000 of gross revenue, GST/HST becomes mandatory.
  • Contracts that show expected revenue for upcoming years and display your business growth trajectory and income projections.
  • Both personal and business credit scores play a crucial role in showing your creditworthiness to potential lenders.

What is a self-employed mortgage?

A self-employed mortgage serves individuals running businesses or freelancing, offering loan options to adjust their financial situations. Unlike conventional mortgages that rely heavily on stable employment records and income validation, a self-employed mortgage recognizes the variable income streams and different documentation for self-employed applicants. These mortgages assess income through other means, such as tax returns, financial statements, contracts, or invoices, allowing self-employed individuals to show their financial stability and qualify for self-employed home loans.

How many years do you have to be self-employed to get a mortgage?

The duration required to qualify for a mortgage while being self-employed depends on showcasing a stable business history. While some lenders prefer a minimum of two years of self-employment history, securing a mortgage is possible even if you’ve been self-employed for a shorter duration, provided you can show financial stability and income reliability during that time.

Is it possible to secure a self-employed mortgage without providing income proof?

A self-employed mortgage without income verification is possible. Sagen and Canada Guaranty are the only mortgage default insurers accommodating this option. A minimum down payment of 10% is necessary to qualify, coupled with a lender uniting with either of these insurers. Lenders might consider larger down payments of 30% or more in exchange for flexibility in income verification. It’s essential to note that CMHC-insured mortgages mandate proof of income from self-employed borrowers.

Do self-employed individuals typically face higher mortgage rates?

There might have been scenarios where self-employed individuals had to pay higher rates than conventional employed borrowers, but there is no rule like that. A robust financial profile helps secure lower mortgage rates. Having mortgage default insurance for your self-employed mortgage can ensure similar rates to other insured mortgages.

The Bottom Line

In Canada, the self-employed mortgage options are expanding, creating pathways for entrepreneurs aspiring to own homes. Maintaining financial records, including work contracts and other relevant documentation, is pivotal for self-employed applicants. These records are essential for pre-approval, ensuring a smoother and robust application experience. With strategic planning and proper documentation, navigating the mortgage landscape as a self-employed individual becomes an achievable goal.