How to Get a Mortgage as a Self-Employed Home Buyer
How to Get a Mortgage as a Self-Employed Home Buyer
With the right preparation and guidance, it is still possible to get a mortgage as a self-employed home buyer. Continue reading to learn more about this!
As a self-employed individual, you may face unique challenges when it comes to getting a mortgage. Unlike traditional employees who receive a steady paycheck, your income can vary from month to month or year to year, making it difficult to prove to lenders that you can make your mortgage payments. However, with the right preparation and guidance, it is still possible to get a mortgage as a self-employed home buyer.
1. Know the Requirements
Before you start looking for a mortgage, it's important to understand the requirements that lenders have for self-employed individuals. Lenders will typically require you to have a good credit score, a down payment of at least five percent of the home's purchase price, and proof of your income for the past two years. You'll also need to provide additional documentation, such as your business license, financial statements, and tax returns.
2. Build Your Credit Score
Your credit score is one of the most important factors when it comes to getting approved for a mortgage. As a self-employed individual, you should aim to have a credit score of at least 680. To build your credit score, make sure you pay your bills on time, keep your credit card balances low, and don't apply for too much credit at once.
3. Save for a Larger Down Payment
As a self-employed individual, you may be required to make a larger down payment than traditional employees. This is because lenders consider self-employed individuals to be a higher risk. By saving for a larger down payment, you can show lenders that you're serious about buying a home and are willing to invest your own money into the purchase.
4. Keep Accurate Records
Lenders will want to see proof of your income, expenses, and taxes. That's why it's important to keep accurate records. This includes keeping track of your income and expenses each month, as well as organizing your tax returns for the past two years. By keeping accurate records, you can demonstrate to lenders that you have a stable income and are capable of making your mortgage payments.
5. Work with a Mortgage Broker
Working with a mortgage broker can be beneficial for self-employed home buyers. Mortgage brokers have access to a variety of lenders and can help you find a mortgage that works for you. They can also help you navigate the complex mortgage application process and provide guidance on the documentation you'll need to provide.
6. Consider a Stated Income Mortgage
A stated income mortgage is a type of mortgage that doesn't require you to provide proof of income. Instead, the lender will rely on your stated income. This can be beneficial for self-employed home buyers who have a difficult time proving their income. However, stated-income mortgages typically have higher interest rates and require a larger down payment.
7. Do NOT write off income to save on taxes
Your accountant will usually push to write-off as many expenses as possible to save on taxes - they will rarely ever consider that this messes up your mortgage eligibility.
Before writing off expenses, talk to our mortgage broker team specialized on self-employed loans. We will give you an estimate on how much you can safely write off without shooting yourself in the foot for mortgage eligibility!
THE BOTTOM LINE
Getting a mortgage as a self-employed individual may seem daunting, but it's not impossible. By understanding the requirements, building your credit score, saving for a larger down payment, keeping accurate records, working with a mortgage broker, considering a stated income mortgage, and being patient, you can increase your chances of getting approved for a mortgage. Remember to do your research and shop around for the best mortgage rates and terms. With the right preparation and guidance, you can achieve your dream of owning a home as a self-employed individual.
Apply for a self-employed mortgage in Canada with the help of Level Up Mortgages. Level Up Mortgages is a mortgage broker team focused on helping the self-employed, new immigrants, non-residents, and investors access the best rate and alternative lending in Canada. We have been nominated for the best up-and-coming broker in Canada in 2021 and have been on CTV News and various publications because of our education-first approach to helping you always stay a step ahead of the process. Reach out to us for access to our first-time buyer course or a mortgage strategy session.
See What You Qualify For Or Contact Paul To Get Your Pre-Approval.
Paul Davidescu (www.levelupmortgages.com)
Level Up Mortgages
604-809-3188
paul(at)levelupmortgages.com
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