Approximately 20% of Canadians are self-employed, making this an important segment in the mortgage and financing space. When it comes to self-employed individuals seeking a mortgage, there are some key things to note as this process can differ from the standard mortgage.

In order to obtain a mortgage as a self-employed individual, most lenders require personal tax Notices of Assessment and respective T1 general forms to be included with the mortgage application for the previous two years. Typically, individuals who can provide this proof of income – and have acceptable income levels – have little issue obtaining a mortgage product and rates available to the traditional borrower.

Self-Employed Categories

For those self-employed individuals who cannot provide the Revenue Canada documents, you will be required to put down 20% and may have higher interest rates. If you can provide the tax documents but don’t have enough stated income due to write-offs, then you have to put down a minimum of 10% with standard interest rates. If you are able to put less than a 20% down payment when relying on stated income, the default insurance premiums are higher. If you can provide the tax documents and have a high enough income, then there are no restrictions.

Documentation Requirements

For self-employed individuals, the following documents must be provided, in addition to your standard documentation:

• Two years of T1 general forms.
• For incorporated businesses, two years of accountant-prepared financial statements (Income Statement and Balance Sheet).
• Two most recent years of Personal NOAs (Notice of Assessments) and tax returns.
• Potentially 6-12 months of business bank statements.
• Confirmation that HST/Source Deductions are current.

Income Calculation

When it comes to calculating income for a self-employed application, lenders will either take an average of two years’ income or your most recent annual income if it’s lower.

If you have an incorporated business, some lenders may be able to use the most recent two years’ financials (prepared by the accountant) to determine your annual income.

If you’re self-employed and looking to qualify for a mortgage, or simply have one, reach out to your mortgage professional today! I can work with you to ensure you have the necessary documentation, discuss your options, and obtain a pre-approval to help you understand how much you qualify for.