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(Sept 10, 2023)

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Are you a self-employed individual in Canada with the dream of owning your own home, despite having a low income and limited funds for a down payment (less than 20%)? If so, you’re not alone. Many aspiring homeowners find themselves in a similar situation, facing unique challenges when it comes to mortgage qualification. In this article, I’ll discuss mortgage qualification for self-employed applicants who struggle to fit the traditional income profile or meet the 20% down payment criteria (commonly associated with self-employed mortgages). It may seem daunting, but with the right knowledge and strategies, homeownership can become a reality for you. Yes, you can own a business and qualify for a mortgage too!

Let’s start with the minimum qualification criteria:

You must have a minimum down payment of at least 5% of the purchase price.
You cannot be in arrears with your personal income taxes (Canada Revenue Agency). If you owe more than $2,000, you’ll need to pay the balance before the closing date of your purchase.
You must provide a description of your industry or profession and verify the type of business ownership (sole proprietor, partnership, or corporation).
You must be self-employed for at least two years.

Once you’ve met these four main qualification criteria, you’ve tackled the most challenging part of mortgage qualification for self-employed applicants. From here on, it’s smooth sailing!

Here are the basic guidelines that most lenders follow for self-employed mortgage qualification:

You’re eligible for virtually every mortgage product available in the marketplace (fixed, variable, hybrid, etc.).
With a down payment less than 20%, you must either occupy the property as your principal residence or your second home. Generating rental income to qualify for the mortgage is not allowed. You can only generate rental income if your down payment is 20% or higher.
Self-employed mortgage approvals are mostly limited to Canadian Citizens and Permanent Residents; work permit holders are not eligible.
Mortgage loan amounts are capped or limited based on personal income declaration, location of the property, and property type.
Appraisals are likely not required for purchases with down payments less than 20%
For mortgages with down payments less than 20% and purchase prices under $1 million, the maximum amortization is 25 years.
The minimum down payment of 10% must consist of at least 5% from your own sources; the remainder can be gifted from a family member.
No previous bankruptcy within a 7-year period.
No derogatory ratings or defaults on a previous mortgage in the past seven years.
No delinquencies in any of your personal credit accounts in the past 12 months.

Self-Employed Document Requirements:

2 years T1 Generals
2 years Business Financials
2 years Notice of Assessments
In some instances, lenders may require additional documentation, such as business bank statements, GST returns, Articles of Incorporation, or a Business License.

Conclusion:

After fulfilling all of the above requirements, the lender calculates and determines your personal income declaration for mortgage qualification. They do this within reason; it has to make sense. It’s crucial to emphasize this part. If you think it makes sense, but the lender doesn’t, be prepared to provide more evidence through documentation or precise clarification. This could range from a simple explanation to a detailed review of your current business revenue by examining your business bank statements.

Self-employed mortgages do not undergo automatic adjudication, often requiring more time when seeking financing conditions after an accepted offer. However, obtaining a pre-approved qualification can ease uncertainty in the adjudication process and increase the likelihood and speed of approval once an offer is accepted. Nonetheless, it is strongly advisable to pursue financing conditions with self-employed applications.

Self employed and wondering if you can qualify for a mortgage? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko.

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