Self-employed? You can breathe easy - the new mortgage rules don’t change the bulk of this mortgage option! There are still some hoops to jump through, this article serves as a guide to get you started on your road to home ownership.
Who are the Self-Employed?
Those with a 25% or greater ownership interest in a business are considered to be self-employed. The following factors must be analyzed before approving a mortgage for a self-employed borrower:
- the stability of the borrower’s income.
- the location and nature of the borrower’s business.
- the demand for the product or service offered by the business.
- the financial strength of the business.
- the ability to continue to generate income.
A two year history of the borrower’s income will be necessary to analyze and make sure there is sufficient income for a mortgage. If you are newly self-employed, i.e. 12-24 months, a mortgage can still be available to you. As long as your tax return from the previous year has similar numbers to the new business, you’re be good to go!
There are a few required documents to be prepared with:
Proof of Business Ownership
You must be able to prove that you own your own business. Any one of the following documents serves as proof:
- Articles of Incorporation
- T1 Generals with Statement of Business Activities
In the unlikely event you’re unable to provide one of these verifications, you could use:- Phonebook Advertisements etc.
Down-Payment Verification
If you’re an entrepreneur looking for a mortgage, you must be able to prove that you have the appropriate funds for a down payment.
How do you prove your down payment funds? With any of the following documents:- 90 days bank statements to show money accumulating in your account
Investment statement(s)
- Sale of existing home (Showing Net equity)
- Any documentation that shows you have the money available and ready for purchasing a home.
Don’t Forget About Your Credit History!
It’s vitally important that you are honest about your credit history, good or bad. Lenders understand that there are ups and downs in every entrepreneur's financial history. When you are honest about your credit, it makes it easier for a lender to help you. Bad credit will make itself known at some point, you can avoid nasty surprise by being upfront and honest about it.
Let’s Review the Basics
To be prepared for a mortgage you will need:- Bank statements showing income in your bank account on a regular basis.
- Financial statements from the last two years.
- Notice(s) of Assessment from Revenue Canada.
- Proof of HST and GST payments.
- The highest possible down payment.
For entrepreneurs, it’s important to make yourselves as attractive as possible. But this does not mean fudging the numbers! If you are prepared and honest about your financial situation, you will get the best options that will work for you, and your business.
Have more questions? I have the answers! Contact me to learn more and get the best rates for your mortgage.
Surviving a Self-Employed Mortgage
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