SELF-EMPLOYED MORTGAGE IN ANCASTER, ONTARIO
Self-Employed people differ from traditional employees in that the income they claimed for tax purposes is not always reflective of their actual earnings.
That reality can be a challenge when applying for a mortgage. As such, lenders allow for self-employed mortgages to have a stated income that allows us to advise the actual amount the self-employed person earns.
The main reason is that lenders need to see that you have a consistent source of income, and it’s harder for self-employed people to prove that they do. A business owner or freelancer might not consistently make the same amount of money month after month, or year after year.
The other issue is proving that you have enough money coming in each month from all sources combined (including any rental income) to cover the mortgage payment—or at least enough money saved up as an emergency fund when something happens unexpectedly.
But no worries, self-employed people can also use some other types of income on their applications. These include:
- Rental income
- Pension income
- Interest and dividend income
As a self-employed person, you face more hoops to jump through than those who are employed by someone else. You have to provide more documentation and proof of your income. The bank has to be convinced that you're good for the money, and they need to see that your business can afford any debt it takes on.
The good news is that many lenders are aware that self-employment presents some unique challenges when it comes to securing financing, so they've put together policies designed specifically for this group.
If you have excellent credit, you'll have no problem getting a mortgage. If not, it could be a challenge.
Your lender will examine your income, assets and liabilities to determine whether or not you can afford the loan amount requested. Your income must be sufficient to cover the monthly payment plus taxes and insurance. Your assets should include cash in the bank to pay off the debt if necessary (this is called reserves). You should also have enough savings so that if something happens and you become unemployed or unable to work due to illness or injury, then there will still be money available for living expenses until employment is resumed again or another source of income comes along as well as enough funds available for emergencies such as medical bills etc.
If you are self-employed and have a business bank account, then this is the one that will be used to show your accounts. If however, you do not have a business bank account and instead use your personal account, this can also be used as evidence of income.
When it comes to mortgages for people who are self-employed it is important that they have some form of accounts in order for their application to be successful.
There are limiting factors due to the increased risk of stating an income as opposed to providing documentation to verify it. Credit scores become a point of focus and it is essential that a self-employed person have excellent credit. The most that can be loaned without paying a mortgage insurance premium is 80% (LTV- loan to value) of the property’s value. Any time is less than 80% is needed the mortgage is required insured which are known as high ratio mortgages.
In cases where a self-employed person claims enough that they can qualify for their mortgage without requiring stated income, then the self-employed mortgages become a traditional purchase or refinance and traditional rules apply.
For self-employed workers you will have to provide 2 years of Revenue Canada Notice of Assessment.
Experienced Mortgage Agent Marisa Nguyen offers Professional Mortgage Services with the best mortgage rates available to clients across Ancaster, Hamilton, Burlington, Niagara Falls, St. Catharines, Guelph, Milton, Oakville, Mississauga, Brantford, Grimsby, Kitchener, Niagara on the Lake, Toronto, Simcoe, and Port Dover, Ontario.