Self Employed Mortgage Canada, Toronto & Ontario

Tens of thousands of Canadians take out mortgages every year. And for most, getting approved for a home loan is one of the easier parts of the mortgage application process. There are several factors that your lender will consider regarding your mortgage approval. From your credit score to employment, down payments, and income sources, there are many pieces to the mortgage application puzzle.

Let’s discuss the details a lender wants to see in your application:

1. Have a Good Credit Score

Your credit score is a big factor in whether or not you will be approved for a mortgage loan. If you want to get the best rates being offered by lender for your mortgage approval, you need to have a good credit score (above 680).

Many things affect the calculation of your credit score, including payment history, debt-to-income ratio, and length of time with each account. The better these factors are for you, the better chance you have of getting approved for a mortgage loan.

Business owners should always be aware of their credit scores. Since small businesses are known for taking on debt before the company is in a stable position financially, these debts can negatively impact their credit scores.

As long as you pay your bills on time, you won’t have a problem with your credit. However, if you are late or miss payments on bills, this could cause your credit score to drop. A low credit score doesn’t necessarily disqualify you from receiving a mortgage, but it’s important to be aware of the effect that missed or late payments can have on your ability to qualify for a loan. Also having too much debt will negatively impact your credit score and the credit bureaus in Canada (Equifax and TransUnion) reward clients with positive credit ratings each month if the balance of the debt is low. High debt results in the bureau giving negative scores to the borrower as credit utilization is a key factor when the creditors report each month to the credit bureaus in Canada.

Your mortgage lender will look at a seven-year history of your credit report when evaluating your application, so it’s best to establish good credit habits over the years prior to applying for a mortgage.

Offer a Higher Down Payment

If you can manage, we often suggest that you offer a higher down payment for the mortgage loan. By doing so, you will reduce the lender’s risk and the interest rate they are required to charge you. In addition, if you have saved up some money for a down payment, it is much easier to qualify for a mortgage loan than if you were applying with no money saved up.

The amount of money that you can put down as a down payment varies by lender and loan program. Here are some general guidelines:

If you want to buy a house for $500,000, and are putting $100,000 as down payment, the remaining $400,000 will be mortgages by a lender. For this $400,000 mortgage, you will require a approximately 3% ($12,000) as a closing cost. The lender will not lend on the closing cost. Therfore, you will need to have the closing cost from your own savings or resrouces. Gifted funds can also be used for down payment and closing cost.

If you are qualifying for a mortgage through your bank statements, you must pay at least 20% down with all B Lenders. Some B lenders will also require 25% down payment if the property is located in a rural area or if the water and sewer are not on municipal services. However, if you are qualifying through your notices of assessment through an A lender (banks), you can put 10% down when purchasing an owner-occupied home. Also all mortgages for rental properties require a minimum of 20% down payment regardless of the lender being an A or B lender.
Standard Canada Mortgage and Housing Corporation insurance applies to borrowers putting a down payment lower than 20%. All mortgages that are insured will have the insurance premium rolled into the mortgage and it will be amortized along with the mortgage loan amount.

One way to increase your odds of getting approved for a mortgage is by making sure all of your documents are in order before applying for financing. This includes having up to date proof of employment such as recent pay stubs or recent employment letters (dated within 30 days of submission to lender), as well as most recent 3 months of bank statements confirming employment and other income deposits such as rental income or child tax benefit, and other supplementary income.

Have Lower Debt

You should be mindful of how you’re using debt and how it impacts your mortgage approval. The less debt you have, the better your application looks when applying to a lender. People with little debt, tend to have better credit scores and get approved for mortgages more easily than those with large amounts of debt. This is become all A and B lenders have debt servicing ratio requirements.

Having low debt, shows lenders that you have the capacity to manage your debts which gives them confidence to approve your mortgage request.

It is not necessarily bad to have debt. You can use debt intelligently. However, you should be careful not to let the debt amount get out of control to a point where you are falling behind on payments.

Provide a Solid History of Self-Employment

Several factors go into a mortgage lender’s decision about whether or not to give you a loan. One of these factors is the stability of your financial situation, and how long you’ve been self-employed. The longer you can sustain yourself financially, the more likely it is that you will be able to make your mortgage payments consistently.

On the other hand, self-employed individuals have shown a tendency toward longevity in their careers. The longer you’ve been self-employed, the more credible your claim to professionalism.

To qualify for a mortgage, most banks require two years of self-employment income and tax returns. Some lenders may make exceptions for applicants with substantial down payments or good employment history.

To qualify for a mortgage, using bank statements, you can be self-employed for less than two years, so long as your most recent 6 months of business bank statements or personal bank statements (for those that are sole proprietors) show good cash flow generating from business revenues.

Keep a Collection of Accurate Records

Good records are essential to making sound business decisions. You should keep track of your business records for at least the past three years.

If you keep your financial records organized and can locate information easily, you may be able to get a mortgage more quickly. If your records are disorganized or you aren’t able to locate information, it might take longer for your mortgage lender to trust you with a mortgage approval.
We recommend that you gather your financial information before applying for a mortgage. This will keep all of your relevant information in one place, which makes it easier to access when you need it.