Securing a mortgage can be challenging when you’re self-employed, especially with unpredictable income. Traditional lenders often prefer borrowers with steady paychecks, but that doesn’t mean there aren’t great options for self-employed Canadians, including influencers, gig workers, and solopreneurs. The key is understanding your choices and finding the mortgage option that best fits your unique situation.
What Makes Getting a Mortgage Different for the Self-Employed?
When you’re self-employed, lenders evaluate your financial stability differently. Instead of relying on a single pay stub, they assess your overall income history, creditworthiness, and ability to provide consistent payments. This means providing additional documentation and possibly working with lenders who cater to non-traditional borrowers.
Let’s explore the best mortgage options for self-employed individuals and how to make the process easier.
Best Mortgage Options for Self-Employed Borrowers
1. Stated Income Mortgages
A stated income mortgage allows you to declare your income without providing traditional proof like pay stubs. Instead, lenders may look at:
- Two or more years of personal and business tax returns.
- Notice of Assessments (NOAs) from the CRA.
- Business financial statements.
Best For: Solopreneurs and gig workers with fluctuating income or significant deductions that reduce reported earnings.
2. Conventional Mortgages
If you have strong financial records and a sizable down payment, a conventional mortgage might be your best option. Lenders will assess your:
- Personal credit score.
- Debt-to-income ratio.
- Proof of income through NOAs or bank statements.
Best For: Self-employed borrowers with stable income and savings for a 20% or larger down payment.
3. Alternative Lender Mortgages
Alternative lenders, also known as “B-lenders,” are more flexible than traditional banks. They focus on your overall financial picture and are more likely to approve borrowers with:
- Lower credit scores.
- Unconventional income sources.
- Limited documentation.
These lenders often charge higher interest rates, but they’re a great option for borrowers who struggle to qualify with traditional lenders.
Best For: Influencers and gig workers with irregular income or recent self-employment.
4. Variable-Rate Mortgages
A variable-rate mortgage offers lower initial interest rates than fixed-rate options. However, the rate fluctuates based on market conditions, so your monthly payments may increase or decrease over time.
Best For: Borrowers comfortable with some payment uncertainty who want to take advantage of potentially lower rates.
5. Fixed-Rate Mortgages
A fixed-rate mortgage locks in your interest rate for a set term, providing predictable monthly payments. This option is ideal for self-employed individuals who want stability, especially with unpredictable income.
Best For: Solopreneurs and gig workers looking for consistent payments and long-term planning.
6. Business-for-Self Mortgages
Specifically designed for self-employed borrowers, these mortgages consider your gross income before deductions, making it easier to qualify even if your net income appears lower.
Best For: Borrowers who maximize tax deductions and show reduced net income on their returns.
Tips for Choosing the Right Mortgage
- Evaluate Your Income Stability: Consider whether your income is steady enough for a fixed-rate mortgage or flexible enough for a variable-rate option.
- Build Your Credit Score: A strong credit score can help you qualify for better rates and terms.
- Work with a Mortgage Broker: Brokers have access to a variety of lenders, including those that specialize in self-employed borrowers, and can match you with the best option.
- Save for a Larger Down Payment: A larger down payment reduces the amount you need to borrow and can make lenders more willing to approve your application.
- Choose a Flexible Lender: Alternative or business-for-self lenders may offer more accommodating terms if your income is irregular.
Final Thoughts
The best mortgage option for self-employed borrowers depends on your unique financial situation, income patterns, and risk tolerance. Whether you’re considering a stated income mortgage, a business-for-self option, or working with an alternative lender, the key is preparation and choosing a lender who understands the needs of self-employed Canadians.
Need help finding the right mortgage for your business or lifestyle? Contact us today for personalized advice and expert guidance tailored to your situation.
