Mortgages for the self-employed

Be prepared to prove that your requested amount is affordable.

Deanne Gage 10 June, 2016 | 5:00PM
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It's prime season for mortgage approvals.

To qualify for a standard mortgage from a lender, you need proof of your income. While a paystub and letter of employment may be sufficient documentation for the average employee, the prerequisites for the self-employed are more complex. Simply put, the self-employed will need to present much more paperwork about their businesses and how they earn income.

"It's not uncommon for someone who is self-employed to reach out to us a few years prior to getting the mortgage so they have some clear understanding of what their options are," notes Angela Calla, an accredited mortgage professional at Dominion Lending Centre in Port Coquitlam, B.C.

To start, self-employed professionals need to show a minimum of two years' income if they have less than 20% for a down payment. The biggest hurdle with proving self-employment earnings is that business income is calculated after expenses and other write-offs, so the amount looks smaller than a comparable base salary from an employer. The smaller the income, the smaller the mortgage you qualify for.

To show a more accurate reflection of self-employed income, the borrowers are required to provide documentation such as a notice of assessment (NOA), business financials and company structure/ownership.

Self-employed mortgage applicants should also be prepared to answer a business questionnaire about how their income is generated, Calla adds. "Depending on the complexity of the situation, the lenders also may ask for bank deposits, invoices and contracts with clients you work with regularly."

Having an impeccable credit score (680 or higher) is a must if you want to be considered for the best mortgage options, Calla notes. "Any late payments to credit cards or lines of credit will make it difficult to get a mortgage."

Multiple credit checks can also be a red flag for lenders. They may think you are altering your application at different lenders, which will put you under extra scrutiny, Calla says. Using one mortgage broker means one credit check and researching all the different mortgage options available simultaneously.

Don't think your documentation requirements are over once you obtain the initial mortgage. Renewal time also means presenting the same paperwork all over again. When Bryan Borzykowski, a freelance writer and editor who operates as a sole proprietor in Toronto, wanted to renew his mortgage, he had to send in two years of notices of assessment (NOA) and T1s.

"I was surprised at the amount of paperwork they still needed for the mortgage renewal. I thought they would just approve me," he says. His main advice for the self-employed? Stay organized. "Keep those NOAs handy."

When Brad Hussey wanted to buy a larger home in Hamilton, he had been self-employed as a communications consultant for three years. He worried whether the banks would approve a mortgage for his family this time around. "The first couple of years working freelance can be your worst years as you struggle to get a solid cash flow and regular work," he explains. "My first few balance sheets were mediocre at best, certainly less than what I had been earning with full-time work."

But in the end, the Husseys were offered a mortgage. The lender just wanted proof that he didn't owe a large balance to Canada Revenue Agency. Hussey's wife worked full time, offsetting Hussey's self-employment, and he brought in copies of all his invoices, contracts and NOAs. "I had even asked my regular clients if they would be willing to send an email about future workloads and their intentions to keep me on board," he says.

It also helped that the Husseys had some equity built up in their starter home and were buying in an up-and-coming neighbourhood.

Besides staying on top of paperwork, Hussey recommends that self-employed professionals consider their timing when applying for a mortgage. He gives the example of a year when revenue is light or heavy on expenses, but the person also has a couple of large invoices in accounts receivable. "Ask if the invoices will be enough to satisfy the lender's criteria or if it's better to wait until you have the funds in the bank," he suggests.

Hussey also advises sole proprietors to have written contracts for regular work. "They are not unbreakable, but they do show an expectation of revenue and some commitment from your clients," he says.

Finally, if you are just considering becoming self employed, there may be less hassle to getting approved for the mortgage while you're still an employee. Calla uses the example of a woman who worked in marketing for a large company who wanted a house but wanted to leave her job to work on her own.

If she had recently left her job, she'd have to wait two years to have the required self-employment income, which may or may not be the equivalent of her current salary. By getting the mortgage now, there would be no surprises. She would know how much she would qualify for.

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About Author

Deanne Gage

Deanne Gage  Deanne Gage is a Toronto-based writer who has specialized in personal-finance issues since 1999. A recipient of several journalism awards, including one from the Investment Funds Institute of Canada, she is also a former editor of Advisor's Edge and She can be reached at

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