Getting a Mortgage is Harder for the Self Employed

January 21, 2015

Mortgage lenders and the self employed go together a bit like oil and water. Given that an increasing number of Canadians are turning to self employment thanks to job losses and a tepid economy, you would think there would be some concessions made for this growing workforce.

It’s not that small business owners, entrepreneurs and freelance or contract professionals cannot qualify for a mortgage. But many banks and lending institutions deem them more risky. As a result, they are typically scrutinized more rigorously thanks to their lack of a regular paycheque.

So for those 2.6 million Canadians or about 15 per cent of the workforce that are self employed the first expectation you need to be aware of is this: be prepared to jump a few more hoops when applying for a mortgage than you have in the past.

You have the federal government to thank for that after it tightened up mortgage rules that made it even tougher for the self employed. That, in combination with lowering the maximum amortization period from 40 to 25 years and reducing the maximum gross and total debt service ratios to 39 per cent and 44 per cent respectively, make it that much harder for the self employed.

Here are some things to keep in mind when applying:

Lenders commonly look at average incomes for the field the self-employed applicant is in, comparing it to their earnings and income history. Banks also study tax documents and take a closer look at tax write-offs in an attempt to reconcile true income from reported income.

Typically, financial institutions will want the last two or three years of your notices of assessment. These spell out your reported income, what you’ve written off and how much you owe in taxes.

Make sure your credit is up to snuff. Check your credit status to find out if you have any negative marks against you that you can correct or improve upon before applying for a mortgage. Pay outstanding income and property taxes and try to pay your bills on time so your credit history stays strong.

Loan-to-value counts. Try to have a sizable down payment for your new house. It will likely improve your odds of getting approved and it could help you get a better interest rate. Because your income usually fluctuates from one month to the next, try to build an emergency fund which will also help qualify you for a mortgage.

Bring your credit down. Try to pay off or down credit cards and lines of credit before applying for your credit score.

Rob Golfi of The Golfi Team is a Sales Representative with Remax Escarpment Realty Inc, your real estate expert servicing the Hamilton, Stoney Creek, Grimsby and surrounding areas. You can contact Rob at


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