There are generally two ways to qualify for a self employed mortgage.
1. If you have been self employed for at least 2 years and can show proof of income with 2 years of tax returns (ex. T1, Notice of Assessment), you can qualify similarly to traditional employed borrowers.
✨ 2 years of tax returns will give you access to Prime A lenders and rates.
2. If you have been self employed for less than 2 years OR if your tax returns don’t demonstrate proof of income needed to qualify with an A lender, you will have to qualify with an alternative, B, or private lender.
✨This option is called stated income. We use 6-12 months bank statements to calculate an average annual income.
✨This option requires a larger down payment than the traditional minimum 5%.
✨Alternative lending is often easier to qualify, as they have extended debt service ratios, but they are associated with fees and higher interest rates.
A bit of a trade off but typically if you are paying taxes on enough profitable income, you will qualify with an A lender, if you’re reaping the tax benefits of self employed income (write offs, deficits, etc.) you’ll have to explore qualifying with a B lender.
There are many strategies that could be taken for self employed individuals to obtain prime A lending and rates. Typically these strategies would have to be implemented 2 years prior to purchasing, to gain access to 2 years of beneficial tax returns for the mortgage application.
If you’re self employed and would like to learn more about your current options or implementing future strategies to reach Prime A lending, let’s chat today ✨
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