Nowadays, people are shifting from their regular salaried job to self-employment. The upside of this shifting is that you can enjoy intrinsic rewards such as satisfaction of working for yourself, working hours flexibility and unlimited growth. However, apart from all these rewards, a question arises in the mind, why getting a self-employed mortgage is becoming a complex issue.
Borrowers start thinking that, get approved for self-employed mortgage is a long and tedious process. Also, how can they prove their income to get benefits as the traditional borrowers get in the terms of low interest rates from Canadian banks.
In this blog, we would like to discuss how self-employed can secure a mortgage from traditional lenders and from private lenders as well, even if they declare gross income or net income, or if they have a challenging credit history also.
What is a self-employed mortgage?
A self-employed mortgage is a secured loan, it can be a residential loan or a commercial loan, where borrowers are either sole proprietors or corporate owners. This mortgage is different from salaried earning employees who are part time or full-time workers.
What documents do you need to get approval for a self-employed mortgage?
• Self-employed with minimum down payment 10%- Along with self-employed income and a good credit history, you can secure a mortgage with minimum down payment 10%.
• Business Financials- Lenders might need 2 years business financials of incorporation to prove your regular source of income.
• T1 generals for 2 years- Lenders might need to know net income on your tax return documents to get you approved for a mortgage.
• Notice of Assessments for 2 years- Self-employed borrowers need to provide 2 years of NOA as most lenders would like to see 2 years of provable income. Lenders want to make sure whether you are paying your CRA taxes on time or not. Also, if any taxpayer has tax arrears on NOA, the government of Canada has a right to place a registered lien on your property. Because of all these reasons many lenders require to provide them NOA for at least 2 years.
• A good credit history- A good credit history is the key to get you competitive best interest rates from those lenders who consider beacon score for a mortgage approval. For more information about the required documentation, contact MB Mortgages inc. We can help you through the whole process and guide you how you can secure a self-employed mortgage even if you have a challenging credit history and lack of supporting documents to proof your income.
Pros of self-employed-
• First advantage of being a self-employed is that you can write off certain business expenses such as business meals, education, travel, etc. As a result, you mitigate your taxable income to save money legitimately. On the other side, salaried employees do not have access to this benefit.
• Second advantage of being a self-employed is that you might get approval from lenders showing your stated income. A stated income where lenders might not require pay stubs, tax returns documents (T1 and NOA) and other supporting documentation to verify your income.
• Finally, if you have a challenging credit history or cannot prove your income, you can still get approved for a mortgage. MB Mortgages can help you secure a mortgage based on your situation.
Cons of Self-employed-
• The downside of a self-employed business is that securing a mortgage is not hassle free from Canadian major banks and monoline lenders. They consider net income to get you approved. Let us say your gross income for 2018 was $100,000 and write off expenses were $70,000, so your net income would be $30,000. In addition, let us say your gross income for 2019 was $120,000 and write off expenses were $80,000, so your net income would be $40,000. Major banks always consider the average of both year income and that would be $35,000 ($30,000+$40,000/2). Based on this example, it becomes difficult to get approved for a mortgage from major banks as they consider the net income.
• You might not secure a large amount of mortgage if you are applying through major banks as they take your net income into account not your gross income. Consequently, you might not get benefit of low interest rates as traditional borrowers get.
Here are some frequently asked questions regarding self-employed mortgage:
1. Do mortgage lenders use gross or net income for self-employed?
Traditional or national banks consider net income to secure a self-employed mortgage, which lessens the mortgage amount because self-employed write off their expenses to reduce their taxable income, whereas B lenders or private lender can consider your gross income to get you approved, they might not need any documentation to support your income to verify and this is called stated income. Contact MB Mortgage today to know more about stated income and how it works.
2. How do I get a mortgage when I am self-employed?
You can get a mortgage through traditional lenders if you can have large amount of your net income and can proof your income with all the supporting documentation. You can get a mortgage through private lenders as well. They can help you to secure a stated income mortgage, where they might need any documentation to verify your income. The downside of private mortgage is that you can get approved with high interest rates as compare to traditional lenders rate. We at MB Mortgages can help you to secure a private mortgage, call us today to check your eligibility.
3. Is it hard to get a mortgage if you are self-employed?
Self- employed mortgage is a complex and long process, but it is not impossible. Why it is tricky, firstly, self-employed do not want to show their exact income and secondly, they write off expenses in a huge amount to reduce their taxable income. Apart from all these complexities, we at MB Mortgage can help you to secure a mortgage if you cannot verify your income or even if you have a challenging credit history, contact us today to check your eligibility.
No matter what situation you fall in, we have several options based on your situation to meet your financial goals. Call us today so that we can evaluate your situation and guide you based on your financial needs.
Why choose us-
As a leading Mortgage Brokerage, we have strong relations with multiple banks and numerous lenders. We work with Canada’s leading lenders to provide you a mortgage solution that fits your budget. Our mortgage and financing process is amazingly simple, we represent you and match you with the best suited mortgage as per your needs. This way we can guide you through this complicated process with our years of mortgage financing experience.
• We are dedicated and professional Accredited Mortgage Brokers in GTA.
• We are well trained and have experience in the mortgage financing field more than 10 years.
• We can shop around with different lenders to get you the best possible mortgage rates and conditions as well.
• We have different options for different income and credit level with access to number of private lenders to suit borrower’s needs.
We are a professional mortgage broker in GTA. We can help you secure a mortgage with best mortgage interest rates. We are located at 2 County Court Blvd., Suite # 438, Brampton, ON L6W 3W8. Call MB Mortgages Inc. today at 905-458-6929/416-939-7131 for your queries or you can email us at: [email protected] or you can visit our website at www.mbmortgages.ca
The information provided in this blog post is intended to provide general information. You should consult with a mortgage professional to fully determine the scope of your situation. MB Mortgages shall not be held liable from usage of the information provided on this page. Individual situation may vary.