Self-employed mortgages
With nearly 20% of all income earners in Canada being self-employed (at least part-time), we often wonder why it is so difficult for this growing demographic to obtain a mortgage. The first issue is the fact that income is not always easy to prove. Also, many business owners are motivated to expense as much as possible in order to minimize their taxes payable, which is something many lenders do not recognize.
In order to obtain a self-employed mortgage, most lenders require that personal tax Notices of Assessment from the past 2-3 years be included with the mortgage application. Those who are able to provide this proof of income can generally access the same mortgage products and rates as traditional borrowers, while those who cannot must at least have a good credit history and provide a minimum down payment of 10%.
In addition to your Notices of Assessment, some of the other supporting documentation a lender may require for a self-employed mortgage application include:
- Financial statements for your business.
- Proof that your HST and/or GST is paid in full.
- Contracts showing expected revenue for the coming years.
- Your personal and business credit scores.
- Proof that you are a principal owner in the business.
- A copy of your borrower’s business or GST licence or Article of Incorporation showing you are licensed.1
- Proof that your down payment has not been gifted.2
Mortgage default insurance rates for a self-employed mortgage
If you can prove your income through your personal tax Notices of Assessment, mortgage default insurance works exactly the same for a self-employed mortgage as it does for a traditional mortgage: you have to pay a premium if you are only putting down between 5 and 19.99%, and you don’t have to pay it once you can put down 20% or more. The premium is then added to your mortgage and paid off over the life of your loan.
Mortgage default insurance rates for self-employed mortgages with proof of income
If you can provide sufficient proof of income, including your Notices of Assesesment, all three mortgage default insurance providers (Canada Mortgage and Housing Corporation (CMHC), Genworth Canada or Canada Guaranty) offer the following rates:
Mortgage default insurance rates for self-employed mortgages without proof of income
If you cannot provide sufficient proof of income, you must put down at least 10%, and you will have to find a lender who uses Genworth or Canada Guaranty. Only those two providers3 offer mortgage default insurance for stated income files, at the following rates:
Using a mortgage broker
Because it is difficult to navigate which lenders specialize in self-employed mortgages, or have more favourable terms for the self-employed, this is one case where using a mortgage broker has obvious advantages. Mortgage brokers have access to multiple lenders and have a broad knowledge of the mortgage market. Therefore, a broker can connect you to the lender most suited to your situation.
References and Notes
- Canadian Mortgage and Housing Corporation (CMHC)
- Canadian Mortgage and Housing Corporation (CMHC)
- As of May 30, 2014, CMHC no longer insures self-employed mortgages, if you cannot provide sufficient proof of income.