When you’ve got your own business and you’re looking to purchase a home, one of the questions you may have is “How long do you need to be self-employed for a mortgage?”
Homeownership is a dream of many Canadians. However, when you’re self-employed, it may seem like you’ve got additional mortgage roadblocks holding you back from achieving your homeowning goals.
However, the good news is that you can get a home mortgage when self-employed in Canada. It comes with a few requirements that we’ll explore in this blog post.
You’ll learn about how a self-employed buyer:
- Is viewed differently by lenders
- Needs to prove the validity and sustainability of their business
- Can improve their approval chances
You’ll also learn about alternatives for a home mortgage for self-employed Canadians. Let’s get started, so you can begin preparing for your successful mortgage application.
Why Do Lenders View Self-Employed Borrowers Differently?
When you’re in a traditional job, with a predictable paycheque and an easy-to-verify employment letter or T4 slip, a mortgage lender has an easier time determining your stability and that you can manage mortgage payments comfortably.
When you’re self-employed, your income can vary from month to month, and your taxes may be optimized to reduce your net income on paper. Of course, this can make lenders more cautious.
This is why the question of how long you need to be self-employed for a mortgage is so important.
How Long Do You Need to Be Self-Employed for a Mortgage?
Most Canadian lenders want to see a minimum of two years of self-employment history.
This is the standard expectation among banks and traditional mortgage lenders because it helps them assess the stability and sustainability of your income.
The good news is that there is some flexibility:
- Strong Income and Credit: If you have excellent credit and strong income records, some lenders may consider one year of self-employment combined with previous related employment experience.
- Alternative or Stated Income Mortgages: These products are designed for self-employed people who can’t provide traditional income verification but can demonstrate the ability to pay using other means (examples: business bank statements showing deposits / Invoices / Retained earnings).
What Documentation Do Self-Employed Buyers Need For A Mortgage Application?
When applying for a home mortgage for self-employed buyers in Canada, you’ll need more paperwork than the typical salaried borrower.
You’ll need to provide:
- Notices of Assessment (NOAs) for the past two years
- T1 General tax returns
- An accountant prepared financial statements if you own an incorporated business
- Business licenses or registration
- Bank statements
Have these ready in advance for a smoother application process.
How Can You Improve Your Chances of A Mortgage Approval When Self-Employed?
If you’re a self-employed Canadian planning to buy a home soon, here are some practical steps to improve your odds of getting approved:
- Keep Your Taxes Up to Date: Make sure you’ve filed all required returns. Outstanding tax debt can be a red flag for lenders.
- Maximize Your Declared Income: While writing off expenses reduces your tax bill, it also lowers your declared income. This makes it harder to qualify. Take a hit on your tax breaks and show a higher net income for at least two years before applying.
- Maintain Good Credit: A strong credit score helps prove you’re a reliable borrower.
- Save for a Bigger Down Payment: A larger down payment reduces the lender’s risk, opening more mortgage options.
- Work with a Mortgage Broker: Brokers know which lenders are more flexible with self-employed applicants and can help you navigate the options. Connect with our HW Advantage team to get insights.
What are Alternative Options for Self-Employed Canadians
When you can’t meet traditional income documentation requirements, you might still qualify for a mortgage in Canada as a self-employed person. There are private mortgage lenders – investors or a private mortgage corporation – that don’t require all the documentation that traditional financial institutions do.
These lenders accept more flexible proof of income but typically charge slightly higher interest rates.
Related: Self-Employed Mortgage Options That You Should Explore
Getting Your Self-Employed Mortgage: Get Help From HW Advantage
Being self-employed shouldn’t stop you from buying a home. However, it does mean you’ll need to plan ahead and be prepared.
While most lenders want at least two years of self-employment history, with the right documentation, strong credit, and the help of a good mortgage advisor, there are paths forward even if your situation is unique.
If you’re wondering how long you need to be self-employed for a mortgage, the best first step is to talk to our team at HW Advantage. We are a Burlington mortgage brokerage that understands the needs of self-employed Canadians and can help you find the right solution for your goals.
We have relationships with over 35 qualified lenders who work with HW Advantage, giving us various options to find you the best mortgage rates in Ontario.
HW Advantage can help you land the home of your dreams. Ready to see how we can help? Contact us today to get your questions about mortgages for the self-employed answered.