VANCOUVER BUYERS GUIDE
Self-employed Canadians are often concerned about how they will qualify for a mortgage because of how their income is structured, and how it is reported for taxation purposes. Half a million Canadians become self-employed every year, and CMHC estimated in July of 2019 that 15% of Canada’s workforce are now self-employed!
We have extensive experience with self-employed borrowers and know how best to structure your mortgage application and where to submit it to your greatest advantage. Whether you own your own business or are in a partnership, are a sole proprietor or are incorporated, a commission salesperson, a tradesperson, or run a part time business from your home, we have the right product and mortgage for you.
Various lenders and insurers offer different programs for the self-employed, depending on how you declare your income, how long you have been in business, and your credit situation. Three Canadian mortgage insurers (CMHC, Genworth, and Canada Guaranty) have specific programs to help self-employed people achieve their home ownership goals. Please click on the links below for more information on their specific offerings.
Lenders vary in which insurers and programs they utilize, and we will help you determine which combination best suits your situation and needs.
Ideally you will have two years history of running your business, but if you do not, there are insured programs that can help bridge the gap.
Lenders will want to see that you can service the mortgage, and will require at a minimum the following documents unless you are utilizing a Stated Income program (an option if your income does not represent your true earnings, the risk to the lender balanced out by adding a premium to the interest rate).
- Two year personal income history including your T1 Generals and your Notices of Assessment (you will need to show no taxes owing if an amount was due)
- If incorporated, two years of your Financials, prepared or verified by an accountant
- Proof of self-employment – a copy of your business license, or if incorporated, your Articles of Incorporation and Notice of Shareholders
- 90 days history of any account(s) the down payment will be coming from
Lenders will average your last two years’ income, or use the lesser if that is the most recent year. For sole proprietors, lenders will gross up the amount of net income claimed on your tax return. Often times we are able to add back some tax deductions such as car expenses and capital cost allowances.
The balancing act for self-employed borrowers is how much to expense and how much to claim as income. First instinct is to have your income as low as possible to minimize income tax payable, but that can cause complications or mean a higher rate come purchase, renewal or refinance time. Feel free to reach out to discuss tax strategy in determining savings in tax vs. increase in mortgage interest, and remember for self-employed borrowers it is a two year average of income! Advance planning will save you money and unnecessary headaches!
The minimum down payment will be 5% on the portion $500K and under, and 10% for the portion of purchase price above $500K. For any purchase with less than 20% down, an insurance premium is added to the mortgage and spread over the length of the mortgage, or amortization. For any property valued at $1M or higher and for any investment property, the minimum down payment is 20% and there is no insurance premium added to the mortgage.
If utilizing a Stated Income Program, a minimum of 10% down payment is required, 5% of which must be from your own funds (not gifted).
Once we have your purchase price and down payment determined, we will lock in a rate for 120 days for you while you start actively looking for your home. This guarantees a maximum rate should interest rates increase while you are still looking.
Once you have found your new home, we will research the best mortgage options and rates for you again at that time, and walk you through the pros and cons of each lender offering to help you make the decision that feels most right for you.
Our team will help you from first call through to following up with your lawyer at closing to ensure your home buying experience is a smooth and a happy one!
Call 604-996-7701 or email to discuss the right self-employed mortgage solution for you!