Many times, I deal with the self-employed and “solopreneurs” who need to apply or reapply for their mortgage. It’s no secret that lenders look for employment status and a regular income as a baseline for whether you qualify for a mortgage. It’s also no secret that the self-employed face an oftentimes more difficult battle, especially if they’re just starting out. Add in the latest changes and the additional “Stress Test” added to mortgage qualification and it could seem daunting for the self-employed. But are their options?
First off, when lenders begin working with self-employed people, they look at stated income, rather than verified income. Unlike salaried workers, a self-employed individual will claim a certain salary/dividend draw from their company and, along with tax returns, financial statements and supporting contracts, those numbers are then used to determine whether a borrower qualifies. This is a burden for some, as many lenders require two years (or more) of these statements.
Lenders will also assess the borrower’s assets. If someone is applying for a $400,000 mortgage and his notice of assessment doesn’t show income that would normally support that, but his business owns vehicles and expensive equipment, the credit union will have a closer look.
Essentially, a lender needs to understand the borrower’s ability to service debt they’re asking to take on. And the best way to do that is for the lender to get to know the business and the business owner as well as possible.
As a self-employed person, here are some of the documents you may need to apply for a mortgage or loan:
1) Tax returns and notices of assessment for the past two or three years
2) Financial statements
3) Confirmation that HST/GST payments are up to date
4) Contracts showing ongoing expected revenue
5) Personal credit score
6) Business credit score