Mortgage For Self Employed

“A Mortgage For A Self Employed Person Allows For Different Methods Of Repayment Validation”

Toronto Mortgage Brokers
Mortgage for self employed is technically not any different from any other type of residential home mortgage.

The rates and terms available to self employed mortgage applicant are really no different than for what you can secure as an employed individual.

The key difference is the manner in which the mortgage lender goes about assessing your income and cash flow for the purpose of servicing the mortgage once its authorized and disbursed.

If you are an employed person, the mortgage lender will quickly know who you work for to validate self employment, and they will know that as a requirement of your employment, your employer is remitting income taxes on your behalf.

With a self employed status, you are responsible for remitting your own taxes and your income reporting can be quite different than an employed person based on things you may be able to write off or deduct that they cannot.

With a self employed person, the first things a mortgage lender needs to do is:

  • verify that you are indeed self employed via articles of incorporation, a business registration, GST number, etc.
  • verify that your income taxes are paid up to date so that there is no risk of insolvency from a collection action taken against you by the government.
  • check your credit.  While the lower interest rates always require good credit, there is a bit of a higher standard required for self employed individuals with some mortgage lenders.

Similar to an employed person, a self employed mortgage applicant can apply for an insured mortgage for mortgage amounts above 80% loan to value.  The main difference between insured mortgages for employed versus self employed is that the insurance premium for a self employed insured mortgage is going to be higher than for an employed applicant mortgage.

As mentioned earlier, the main difference between a self employed and employed mortgage application is the manner in which the mortgage lender verifies or confirms that you produce enough income to cover the costs of the mortgage.

For Self Employed Mortgages, There Are Two Basic Approaches You Can Take When Verifying Income

The first approach is through income qualifying which is similar to what an employed person would go through in that the applicant will qualify the income earned through some combination of financial statements and other third party reporting.  The the case of an employed applicant, the primary third party qualifying documents are T4 slips, CRA notice of assessment, and a letter from the employer.

The second method of proving income is the stated income approach which is used in situations where there may not be enough direct third party income documentation to provide, but through other declarations such as assets owned and their related value, an applicant can prove to a mortgage lender that they have the means to service the mortgage.

Financing vehicles like a home equity loan or home equity line of credit are also possible to secure with a self employed status, alleviating the need for otherwise solid applicants to be pushed into higher cost private mortgage financing options.

Click Here To Speak Directly To The Walsh Team And Get A Free Assessment Of Your Self Employed Mortgage Options