Being self employed can be rewarding in many ways, but it can also present unique challenges, especially when it comes to securing a mortgage. Unlike traditional employees, self employed individuals often face a different set of requirements when applying for a mortgage. This can feel overwhelming, but with the right knowledge and strategies, you can secure a mortgage that fits your needs.

In this blog, we’ll dive into expert tips on how to navigate self employed mortgages, particularly in Ontario. Whether you’re a freelancer, small business owner, or contractor, these insights will help you strengthen your mortgage application and improve your chances of approval.

How Self Employed Mortgages Differ from Traditional Mortgages

A traditional mortgage application typically relies on steady income documented through payslips and tax returns. For self employed mortgages, lenders look at the overall financial health of your business and your ability to generate consistent income. Since your income might fluctuate throughout the year, lenders are cautious and need additional proof that you can repay the loan.

Some key differences between self employed and traditional mortgages include:

  1. Income Verification: Traditional employees can easily provide pay stubs as proof of income. However, self employed individuals must supply several years of tax returns, financial statements, and sometimes bank statements. Lenders want to see stable or growing income trends over the past two to three years.
  2. Higher Documentation Requirements: Unlike a salaried employee, you will likely need to show more extensive documentation, such as business income statements, contracts with clients, profit and loss statements, and notices of assessment.
  3. Income Averaging: Lenders may use an average of your income over the past two to three years to determine your qualifying amount. If your income fluctuates, this average may work to your advantage or disadvantage.
  4. Higher Down Payments: In some cases, lenders may require a larger down payment for self employed mortgages. This helps offset the risk they associate with fluctuating income.
  5. Higher Interest Rates: Depending on the lender’s assessment of your financial situation, self employed mortgages may come with higher interest rates than traditional mortgages. This is mainly because lenders see self employed individuals as higher-risk borrowers.

Tips for Strengthening Your Application

Given the extra scrutiny self employed individuals face, it’s essential to approach the mortgage application process prepared. Here are some expert tips to help you strengthen your application:

  1. Keep Clear and Accurate Financial Records: One of the biggest hurdles for self employed individuals is proving income. Make sure your financial records are in order, including profit and loss statements, tax returns, and any other relevant documents. Lenders will look closely at your earnings, so providing clear, detailed records is crucial.
  2. Increase Your Down Payment: If possible, aim to provide a larger down payment. This can reduce the lender’s perceived risk and increase your chances of approval. A down payment of 20% or more can also help you avoid mortgage insurance fees.
  3. Maintain a Good Credit Score: A strong credit score can make a big difference in your mortgage application. Pay your bills on time, avoid taking on too much debt, and check your credit report regularly for any errors.
  4. Save for a Rainy Day: Lenders like to see that you have enough savings to cover your mortgage payments during times of low income. Aim to have at least six months of expenses saved as an emergency fund.
  5. Keep Your Tax Returns Clean: It’s common for self employed individuals to write off a lot of business expenses, but this can reduce your net income on paper. Be mindful that while deductions lower your taxes, they can also lower the income that lenders use to qualify you for a mortgage.
  6. Use a Co-Signer if Necessary: If you have a partner, spouse, or close relative who has a strong income or good credit, consider having them co-sign your mortgage. This can make your application more appealing to lenders.

If you’re navigating the complexities of securing a mortgage as a self-employed individual, be sure to check out our blog post, “Your Self-Employed Mortgage Checklist: Easy Tips for Success”. It offers valuable tips and a step-by-step guide to help you prepare for a successful mortgage application, ensuring you have all the essential information to make informed decisions for your financial future.

Financial Strategies for Self Employed Applicants

It’s not just about submitting documents; there are some financial strategies you can implement to improve your mortgage options.

  1. Plan Ahead: It’s essential to plan your mortgage application several years in advance if you’re self employed. That means working with an accountant to ensure your financials are as attractive to lenders as possible.
  2. Structure Your Business Income Smartly: If your income fluctuates greatly, consider adjusting your business structure. Some business owners choose to take a steady salary from their corporation, which can provide a more consistent income stream that lenders prefer.
  3. Reduce Your Debt: Try to reduce personal and business debt before applying for a mortgage. A high debt-to-income ratio can negatively affect your chances of approval.
  4. Avoid Major Purchases: In the months leading up to your mortgage application, avoid large purchases that could increase your debt or lower your savings. This includes cars, new business equipment, or expensive vacations.

The Role of Mortgage Brokers for Self Employed Individuals

Mortgage brokers can be incredibly helpful to self employed individuals. They can help you find the best mortgage and interest rates based on your specific financial situation. 

Here’s how they can help your mortgage journey:

  1. Access to Multiple Lenders: Brokers have access to various lenders, including those who specialize in self employed mortgages. They can help you find a lender who is more flexible with income requirements.
  2. Tailored Advice: A good broker will understand the nuances of self employed income and provide you with personalized advice on improving your chances of getting approved.
  3. Negotiation Power: Brokers can negotiate on your behalf, helping you secure better terms, including lower interest rates or flexible repayment terms.
  4. Save Time: Instead of reaching out to multiple lenders on your own, a broker can do the legwork for you, saving time and effort.

At Sure Loan For You, we understand the complexities self employed individuals face when securing a mortgage. We specialize in offering tailored solutions for those in Canada, helping you navigate the process with ease. Our mortgage experts are here to guide you every step of the way, ensuring you get the best deal possible based on your financial circumstances.

Final Thoughts

Getting a self employed mortgage in Ontario can be a bit more complicated than a traditional private contractor, but it’s not entirely impossible. By understanding the difference, properly preparing your application, and exploring funding options, you can greatly improve your chances of approval. Additionally, working with a mortgage broker can streamline the process and put you in touch with lenders who are more likely to approve your application.

Ready to start the journey to home ownership? At Sure Loan For You, we specialize in helping self employed individuals in Ontario obtain the mortgage they need.  Contact us today or give us a call on +1 (416) 710-9000 to learn more and receive personalized help tailored to your situation.

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