For self-employed individuals and entrepreneurs in Calgary, getting a mortgage can feel like an uphill battle. Unlike traditional employees, your income might not be as easy to verify, and lenders tend to scrutinize your financials more closely. But here’s the thing—while the process may come with extra hurdles, it’s completely possible to secure a mortgage that suits your needs.
That said, some mistakes can make the process harder (and more expensive) than it needs to be. Whether you’re a freelancer, contractor, or small business owner, avoiding these five common pitfalls will set you up for success.
1. Not Preparing Your Financial Documents in Advance
One of the biggest challenges self-employed individuals face when looking for a mortgage is proving their income. Unlike salaried employees with T4 slips, you’ll need to rely on other documentation, like your Notice of Assessments (NOAs) from the CRA, financial statements, or even bank account history.
Failing to organize these documents ahead of time can delay the application process—or worse, result in a denied mortgage.
What You’ll Need:
- NOAs from the past 2-3 years
- Proof of self-employment, such as incorporation documents or a business license
- Bank statements showing consistent income deposits
- A list of business expenses if they heavily affect your taxable income
Pro Tip: Lenders want to see stable and consistent income, so ensure your documents show this clearly. If your taxable income is low because of write-offs, consider how this might impact the amount you qualify for.
2. Assuming You’ll Be Treated the Same as Traditional Employees
When you’re self-employed and looking to get a mortgage, lenders don’t just look at your income—they look at the risk associated with it. While salaried employees typically provide T4 slips, self-employed borrowers need to prove they can maintain their income over time, which means the approval process is different.
This is where some borrowers make the mistake of assuming they’ll have the same requirements as someone with a “regular” job.
What’s Different for Self-Employed Borrowers?
- You’ll likely need to provide more proof of income stability, such as multiple years of NOAs.
- Lenders may require a larger down payment (usually 10-20% or more).
- Interest rates could be slightly higher if your income is harder to verify.
Pro Tip: Understand that the lender sees self-employment as riskier, but there are mortgage products designed with this in mind. Don’t take a rejection from one lender as the final word—alternative lenders or mortgage brokers can help.
3. Overlooking the Importance of Your Credit Score
Getting a Mortgage If You’re Self-Employed poses its own set of challenges especially when it comes to your credit. Even if your income is strong, a poor credit score can significantly reduce your chances of getting approved—or leave you with higher interest rates. Your credit score tells lenders how responsible you are with debt, which is especially important for self-employed individuals who may have variable income.
How to Improve Your Credit Score Before Applying:
- Pay off outstanding debts (credit cards, lines of credit, etc.).
- Avoid applying for new loans or credit cards in the months leading up to your mortgage application.
- Check your credit report for errors and correct them.
Pro Tip: Aim for a credit score of 680 or higher to access the best mortgage rates and terms. If your score is lower, consider waiting to apply while you work on improving it.
4. Not Saving Enough for a Larger Down Payment
While it’s possible to get a mortgage with as little as 5% down through an insured mortgage, self-employed individuals are often required to put down at least 10-20% to qualify. This is because lenders view self-employed borrowers as higher risk and want extra security.
Failing to save a sufficient down payment can limit your options or force you into less favorable mortgage terms.
Why a Larger Down Payment Helps:
- It shows lenders you’re financially stable and serious about the investment.
- You’ll reduce the amount you need to borrow, which means lower monthly payments.
- You might qualify for a better interest rate.
Pro Tip: If your savings aren’t quite there yet, consider holding off on your purchase or looking into government programs like the First-Time Home Buyer Incentive to stretch your budget.
5. Skipping Professional Advice
For self-employed people looking to get a mortgage it can be a tricky situation to navigate, and trying to go it alone often leads to missed opportunities. Many self-employed borrowers don’t realize how much a mortgage broker or financial advisor can simplify the process.
Mortgage brokers, for example, have access to alternative and private lenders who specialize in working with self-employed individuals. They can help you find flexible terms, competitive rates, and lenders who understand your unique financial situation.
Pro Tip: A good broker will also help you prepare your application to make it as strong as possible. Even if your credit score or financials aren’t perfect, they can often find a solution that works for you.
Key Takeaways
Getting a mortgage as a self-employed individual might come with extra challenges, but it’s far from impossible. The key is to avoid these common mistakes:
- Prepare your financial documents in advance.
- Understand that self-employed borrowers are treated differently than salaried employees.
- Maintain a strong credit score to secure better rates.
- Save for a larger down payment to increase your options.
- Seek advice from professionals like mortgage brokers who specialize in self-employed clients.
With the right preparation and support, you can secure a mortgage that works for your unique needs as a Calgary entrepreneur. Ready to take the next step? Contact us today to explore your options and get expert advice tailored to your situation.
