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The self-employed are often considered a higher risk

According to statistics Canada 15.5% of the population was self-employed in 2017. Emergent Research estimates that this will rise to 45% by 2020.

If you are self-employed you may battle to find a competitively priced mortgage making it difficult for you to finance a home. This may be because your income is unpredictable and it is probably also understated. Self-employed people account for around 15% of the population of Canada and they are often considered higher risk. If you are self-employed having a higher risk profile may mean that you end up paying a higher rate of interest.
Most lenders require at least two years of proof of income, and for who can provide two to three years of proof of income mortgage access and interest rates will be similar to those in regular employment.

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The income of the self-employed us often understated

Very often the income tax returns of the self-employed do not correctly reflect the take-home pay, as there are allowable deductibles. The amount shown on the income tax return is therefore often significantly lower than actual income earned. This can present problems when the debt to income ratio is calculated. This is a measure of how much of your income is used to service debt, and it is a determinant in how much you can borrow and at what interest rate. Some mortgage providers will allow you to add expenses back for the purposes of calculating the debt to income ratio.

Getting finance isn’t impossible when you are self-employed it is just more difficult. Certified Mortgage Brokers Barrie will work with you to understand your business and match you up with the correct lender.

Preparing to purchase your Barrie home

Some advice for the self-employed who plan to take a mortgage

  • Decide well in advance whether to reduce your allowable expenses, declaring more income and paying more tax, or accept that you may pay a higher interest rate. It may be worth your while to declare more income for two years prior to applying for the mortgage.
    Plan carefully. It is probably not a good idea to take a long holiday in the two years prior to applying for a mortgage since this will reduce your income during the period.
  • Look after your credit score. Some lenders will not give you a mortgage unless your credit score is above a benchmark figure.
  • Make sure that your tax returns are up to date and available.
  • Offer to make a bigger down payment. Under 20% and you will have to pay mortgage insurance. The insurers tend to take away some of the lender’s independence.

You may need to start off with a private lender

When you are self-employed it is easier to obtain a mortgage through a private lender since they are not regulated in the same way as the traditional lenders and they won’t require the same level of documentation. Private lenders are more concerned with the value of the property than your credit score and are more forgiving of credit score problems than the traditional banks.
Because of the difficulties inherent in obtaining a mortgage when you’re self-employed you’d be well advised to seek the assistance of Certified Mortgage Brokers in Barrie. We have a long list of lenders and we can match you with one that will understand your business.

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