For those of you that are self employed and don’t report the amount of net income required to qualify for many residential mortgage loan programs, fear not as there are self employed mortgage programs designed with you in mind.
When an individual applies for what we call a traditional mortgage application for either buying a home or refinancing an existing mortgage, the lender will immediately ask you for Income Verification.
More Specifically, the lender will ask for your last two years notices of assessment from the Canada Revenue Agency to verify your personal income and then average the reported income for that two year time frame to see if you have sufficient earnings to cover the monthly cost of the requested mortgage.
Lenders will look at a percentage of this averaged income to be used for making mortgage payments and if you fall below the requirements, the mortgage application will be declined.
For self employed individuals, who have the ability to significantly reduce their reported income by expensing items related to their business operations, the goal is to reduce reported income as much as is allowed to reduce the amount of personal income tax paid.
But reducing income to save on taxes also reduces the reported income considered when you qualify for a mortgage. And traditional mortgage programs are all based on third party income verification, primarily from CRA.
To address individuals that fall into this category, several lending programs have been designed with the self employed person in mind.
They basically fall into two categories: 1) verified income, and 2) stated income.
Income verification is similar to the employment mortgage process whereby income reported to the government for both business and personal are used to assess your ability to repay the mortgage.
For stated income, you will need to complete a statutory declaration to declare your income on the application as well as the length of time you’ve been self employed or at least working in the same field of expertise for a minimum of 2 years.
This declaration must be signed in front of a lawyer in order for a lender to use the information when processing your mortgage request.
These programs can still offer financing up to 95% of the real estate value on a purchase and 80% of the property value when a mortgage refinancing takes place.
To qualify, the properties need to be owner occupied and there cannot be more than 2 living units contained in the building structure.
These self employed mortgage lender programs will even consider situations where you’ve been self employed for less than 2 years provided that you have been working in the same related field for an extended period of time demonstrating your ability to earn an income from your acquired knowledge and experience.
The best first step in locating and securing the best self employed mortgage is to give me a call and I will quickly provide you with a free assessment of your options and will work with you to get everything in place.