According to Statistics Canada, over 2.8 million of the country’s population were self-employed in 2017. The trend continues to grow as more workers choose to give up long commutes and office politics, or are forced into self-employment by a lack of work elsewhere. Being self-employed has many advantages, but it can become an issue when applying for a mortgage. Even if you earn a healthy living working from home, you could have difficulty proving it. There are no convenient tax forms to give bankers so they can verify income. Financial institutions prefer black and white facts. They look for paper trails, which the self-employed often do not have. Fortunately, there are 5 simple steps you can take to improve your chances of being approved.
Understand CMHC Mortgage Requirements and Programs
The Canadian government is well aware of the difficulties self-employed citizens face when applying for mortgages. With that in mind, Canada Mortgage and Housing Corporation (CMHC) has revised its rules regarding mortgages for the self-employed. They have altered document requirements to make it easier for applicants to prove they have an adequate, stable income source. The CMHC is also a great place to learn about Canadian housing programs, learn how to calculate mortgage costs, and find out the best ways to manage a mortgage.Â
Make Sure Your Taxes Are in Order
Before applying for a mortgage, it is a good idea to examine your most recent tax returns. Tax problems might disqualify you for funding and some could even result in hefty fines. It is important that your tax documents show legal sources for cash income. A financial advisor or accountant can review your taxes and make suggestions that help you reach your housing goal.
Keep an Eye On Your Credit
Your credit rating is a huge factor when you are trying to qualify for a mortgage. A good rating provides you with more funding options while a poor credit score can make it nearly impossible to qualify. If a credit check shows a bankruptcy or earlier failed business, a bank is unlikely to approve a mortgage. The best way to safeguard against the problem is to pay off any outstanding debts and cancel credit cards you do not need.Â
Consider Lenders Other Than Banks
Banks tend to be conservative lenders and often have limited mortgage programs for self-employed clients. Fortunately, there are excellent firms that specialize in alternative options. They can usually find self-employed mortgage for most clients who apply.
Try to Build a Nest Egg
The bigger the down payment you provide when applying for a mortgage, the more likely you are to be approved. Lenders view larger down payments as evidence of stability and ability to pay
A self-employed client with a large down payment is viewed as less risky than one who wants to borrow most of the purchase price. It helps to save the biggest down payment possible and talk to lenders other than banks.
It is possible for self-employed Canadians to get mortgages, but the process is often more difficult than for those with traditional jobs. However, an applicant with good credit, no tax problems, and a current knowledge of Canadian mortgage rules has a better chance of success.
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