Many Canadians are self-employed. Being self-employed means you get to be your own boss. You can make your own hours, and enjoy a sense of autonomy while also making a decent living. However, the market is precarious.
The impending recession has only made this reality more stark. As such, many banks and comparable financial institutions may be hesitant to issue a mortgage loan to a self-employed person. Here, our focus will be on getting a mortgage loan if you are self-employed.
Apply With Lenders Who Are Most Likely to Partner With You
There are mortgage loan providers, including Scotiabank, that will offer self-employed people mortgages. The criteria for each lender will vary, so you will need to perform the necessary due diligence in order to determine which company will best fit your needs.
For example, the minimum down payment amount will vary, as will the required credit score range in order to qualify. Different lenders will also offer different rates, as well as loan types, including, but not limited to, pre-paid, interest only, and conventional loans.
Be Prepared to Bring Updated Documents With You
You will need to bring all the necessary documents with you in order to showcase your income and other relevant details. Ensure that all paperwork is completed and filed on time, and that every data figure is accurate and up-to-date.
Most financial institutions will require that you bring several years worth of income documents with you. If you are unable to demonstrate that your business can generate a steady flow of income then your claim will likely be rejected.
At the bare minimum, you should be ready to provide your prospective lender with a profit-and-loss statement, as well as recent bank statements from the previous two years.
Ask a Co-Borrower to Help You Qualify
If you want to maximize your chances of qualifying, you may want to look into asking a co-borrower for help. A co-borrower that works a typical 9-to-5 job may help you qualify for the mortgage loan that you need.
Most lenders want to minimize their risk, and a reliable way to do so is to have a second party on the hook in the event that the primary borrower defaults on the loan. We would recommend that you begin your search by asking trusted friends and family for help, as they will be more likely to help you procure your mortgage loan.
Look into Boosting Your Down Payment
Most lenders are wary of self-employed workers, as they deem them to be a bigger risk. One way to help alleviate some of their fears is to put down a larger down payment. Simply put, when you put down a larger down payment you will also be borrowing less money in the process.
You will also be gaining more equity by putting down a larger down payment, which ensures that your lender will lose less money should you default on the loan in the future. Evidently, saving a sufficient down payment amount is easier said than done.
You may want to consider placing a large amount of money into an interest-bearing account. Reducing expenses by eliminating frills and other non-essentials can also help you build up a larger nest egg.
Moreover, liquidating assets, such as securities, stocks, vehicles, and valuable memorabilia may also help you generate a sufficient amount of capital.
If you are not sure how much you need, or if you wish to determine how much your monthly mortgage payment will change by putting down a larger down payment, then a mortgage calculator is a good place to start.
Ensure that your Financial Credentials are In Order
Having a large amount of income will increase the probability that you will qualify for a mortgage. A good credit score may be just as important, if not more so. Having a good credit score will allow you to have a larger range of mortgage providers to choose from.
As such, you will be more likely to be approved so that you can purchase the home of your dreams. Of course, raising your credit score is easier said than done, but there are a few steps that you can take to help steer you in the right direction.
For example, you can pay down debt as soon as possible in order to quickly boost your credit score. Making timely payments, without missing said payments, will help showcase that you are a low credit risk that can be relied upon in the future.
We would also recommend that you meticulously go through your credit report to check for any inconsistencies or errors that may be hurting your credit score.
Be Prudent Regarding Tax Deductions
Many people will try to reduce their taxes by claiming every possible deduction that they can. By doing so, they end up reducing the taxable income that most financial institutions consider when determining the type of mortgage, and the loan amount, that they qualify for.
Being more careful with your deductions may help increase the chances that you qualify for your mortgage, even if it means your tax bill may be a little higher as a result.
There is Help for Self-Employed People
If you are self-employed and still have questions or concerns regarding the loan approval process, then there is help. The Mortgage Broker Store specializes in hard-to-place mortgages that do not adhere to conventional bank requirements, such as self-employed mortgage loans.
We may be able to help you qualify for a self-employed mortgage to purchase the home of your dreams. To learn more, or to receive a free, no obligation quote, please give us a call at 416-499-2122. We can also be reached via email for a consultation at ron@mortagebrokerstore.com.
