While it’s true that getting a mortgage can be easier for someone that is not self-employed, don’t let that be a deterrent from getting into your new home! There are many mortgage options available to you, as well as plenty of steps that can be taken to ensure you are an attractive candidate to lenders. Please take a look at our eight tips that’ll get you started in this process.
1. First, make sure your credit score is impressive! Your credit score can affect your mortgage in a number of ways. A high credit score is not only a good sign that you are financially responsible, but may even help you qualify for a lower interest rate, And because good credit is important, we have some tips for improving your score provided by the Government of Canada.
2. Consider incorporation. Starting a corporation may be a good option because it helps you to draw a salary. Being able to draw a salary appears as lower risk to lenders.
3. Prepare your documents. You will need to ensure you can provide at least two years of financial statements and/or self-employment history. You will need to provide your last two notice of assessments from the CRA, proof of payment for GST, your credit score, and substantial proof that you are the owner of the business. Given the importance of accuracy, you may want to hire an accountant to help you gather all the required documents.
4. As much as possible, build up your down payment. Doing this increases your equity in the home right off the start, which will ultimately make you less likely to walk away during hard times.
5. Avoid consumer debt! This means those pesky credit card balances need to be taken care of - which goes for anyone trying to qualify for a mortgage. Have a significant amount of cash set aside for an emergency fund so you won’t need to use those credit cards in times of trouble.
6. Consider getting a co-signer, or starting with a smaller loan. You may need to prove your ability to pay your mortgage by starting out with a townhome and moving your way up through the market as you gain more payment history. That starter home could be more than you thought, even though it’s not quite what you originally hoped for!
7. Consult a mortgage specialist. They will be able to help you navigate those waters effectively to give you the most likely opportunities to borrow.
8. Be careful. Be careful in the whole process, of course, but particularly in what you claim under taxable income. The value claimed could affect what the lender sees as your overall income each year. If you write off a lot of expenses, your net income will look lower than it should and you may not qualify for as much.
As you can tell, it can be a bit trickier to get a mortgage when you are self-employed. But if you follow these eight tips, you should be successful in moving into your beautiful new home while still maintaining your own business. Good luck!