For Canadian influencers, gig workers, solopreneurs, and others with unpredictable income, securing a mortgage can feel like an uphill battle. Lenders tend to favor applicants with steady, predictable paychecks, which makes proving your financial stability as a self-employed individual more challenging. The good news? With the right preparation, getting approved for a mortgage is absolutely possible. Let’s explore the essential tips to help you succeed.
Why Is It Harder to Get a Mortgage When You’re Self-Employed?
Self-employed individuals face stricter scrutiny from lenders because of perceived risks around inconsistent income. Unlike salaried employees, who provide straightforward pay stubs, self-employed borrowers must show proof of business income, stability, and financial management.
That doesn’t mean it’s impossible—just that you’ll need to go the extra mile to provide documentation and reassurance.
1. Organize Your Financial Records
The first step to securing a mortgage as a self-employed individual is having thorough, well-organized financial records. Lenders will typically ask for:
- Tax Returns: Most lenders require two to three years of personal and business tax returns to verify your income.
- Notice of Assessments (NOAs): These confirm that you’ve paid your taxes in full and provide a summary of your declared income.
- Business Financial Statements: If applicable, these show the health and profitability of your business.
- Bank Statements: Providing several months of business and personal bank statements can help demonstrate cash flow and savings.
Keeping these documents updated and accurate makes the application process smoother and shows lenders that you’re financially responsible.
2. Reduce Your Tax Deductions
One common pitfall for self-employed individuals is maximizing tax deductions to reduce taxable income. While this strategy saves on taxes, it can also make your income look smaller to lenders.
Lenders assess your ability to repay the mortgage based on your declared income, not your gross revenue. To improve your approval chances:
- Consider reducing deductions in the two years leading up to your mortgage application.
- Work with a tax professional to balance tax savings with income reporting needs.
3. Improve Your Credit Score
Your credit score plays a significant role in the mortgage approval process, especially when you’re self-employed. A strong credit score shows lenders that you’re a reliable borrower, even if your income is unpredictable.
To boost your credit score:
- Pay off outstanding debts or reduce balances on credit cards.
- Avoid applying for new credit in the months leading up to your mortgage application.
- Make all payments on time, including credit cards, loans, and utility bills.
A higher credit score may also help you secure better interest rates.
4. Save for a Larger Down Payment
A larger down payment reduces the amount you need to borrow and reassures lenders that you’re financially invested in the property. For self-employed individuals, saving more upfront can compensate for the perceived risks of irregular income.
While the minimum down payment in Canada is 5% for homes under $500,000, aiming for 20% or more can:
- Help you avoid paying mortgage default insurance (e.g., CMHC insurance).
- Improve your chances of approval with stricter lenders.
Start saving early and explore options like a First-Time Home Buyer Incentive if eligible.
5. Work with a Mortgage Broker
A mortgage broker who specializes in self-employed borrowers can be a valuable ally. They have access to a variety of lenders, including those who cater to non-traditional income earners, and can help you find the best deal for your situation.
A broker can also guide you through presenting your finances in the most favorable light and ensure you meet all application requirements.
6. Consider Alternative Lenders
If traditional banks are hesitant to approve your mortgage, alternative lenders or credit unions may be more flexible. These lenders often focus on your overall financial picture rather than just your income.
While interest rates might be slightly higher with alternative lenders, they can be a good option if you have a solid business history and a strong credit score.
7. Plan for Fluctuations in Income
Unpredictable income can make mortgage payments more stressful, so it’s important to plan ahead.
- Build an emergency fund to cover at least three to six months of mortgage payments.
- Choose a fixed-rate mortgage to ensure predictable monthly payments.
- Avoid overextending yourself by buying a property at the upper limit of your budget.
Final Thoughts
Getting a mortgage when you’re self-employed requires extra preparation, but it’s far from impossible. By organizing your financial records, saving for a larger down payment, and working with a knowledgeable mortgage broker, you can confidently navigate the process and secure the home you want.Still have questions or need expert guidance? Contact us today for personalized advice on mortgages for self-employed individuals. We’re here to help you turn your homeownership dreams into reality.
