hello everyone my name is kevin carlson i'm a mortgage broker here in canada
thank you so much for joining me on my channel to learn a little bit more about mortgage financing
today we're looking at mortgages for those who are self-employed
now if you're an hourly employee and or salaried and you're looking to apply for a mortgage it's
a pretty easy process a letter of employment from your employer your most recent pay stub
maybe a t4 that's about it however if you're self-employed the paperwork process
is significant um it always has been significant but these days it certainly isn't getting any less
so i'm gonna break this video down into a couple of different sections so um the first and most
common uh type of mortgage that people apply for is a purchase mortgage so if you're looking to
purchase a home and you've got maybe five or ten percent down payment let's talk about those first
now if you've seen any of my other videos you'd know that a mortgage of less than twenty percent
down means that you're getting an insured mortgage through cmhc gen worth or canada guarantee
so when it comes to getting a mortgage and qualifying your income with the lenders and
the mortgage insurers the rules are a little bit more strict than if you have more than 20 down
typically you need to be self-employed for at least two full tax years and provide your
full tax returns and your notices of assessment proving your income from your business if you're
a sole proprietor then you also need to provide the typical tax documents that come along with
your t1 general tax returns is the statement of business activities if your company is not a sole
proprietorship and you are incorporated or you're on a partnership then you need to provide some
additional documentation showing the corporate structure of your company if you are not the
sole owner of the company things get a little bit more difficult we just have to provide your
full t1 general tax returns your personal tax returns along with your notice of assessments
so if you're looking to apply for a mortgage and you're self-employed you've been self-employed for
at least two years you've got your tax returns and your notices of assessment the key things that we
look at when it comes to qualifying your income would be your line 150. now in 2019 that changed
it's not lined with 150 anymore it's line 15 000 for whatever reason so previous to
that it used to be called line 150 so that is your personal uh taxable income that we use
some of the lenders that we work with will allow us to dig deeper into your tax returns if you're
a sole proprietorship and you've got a vehicle payment that you use for business purposes and uh
you're wearing that personal expense that's called an ad back so if it's a business expense
we can sort of add that back to your income a little bit more of a dig dig deeper into your
tax return some lenders will also just let us do a blanket 15 percent gross up so adding 15 percent
to your line 150 or a line 15 000 as of 2019 to your income on the mortgage application
now if you're self-employed and you're typically trying to keep your income down a little bit well
it's certainly not going to help the process so when it comes to applying for any sort of
mortgage financing or even loans and that sort of thing the t1 general tax returns uh and your no-so
assessments those are your income numbers that we look at now if you've really been working hard to
reduce your tax burden well it could add a little bit of a challenge to applying for your mortgage
quite a few years ago if you're looking at some old blog posts or articles from
say five or even 10 years ago you might have come across what's called a stated income
for self-employed now that program and those programs have all but disappeared so it used
to be back in the good old days if you wanted to get a mortgage and you were self-employed and as
long as your income taxes were up to date and you had maybe say 10 down payment your stated income
could just be what you feel it might be relative to your industry so
even if your notice of assessment might have said ten or fifteen thousand dollars
but somebody in your line of work typically makes forty or fifty thousand dollars
then that's typically what we did now the mortgage rules changes in canada has kind of gone away from
using that sort of program so we don't really have much success doing what's called stated income
what there are stated income programs for are for professionals like dentists doctors veterinarians
where they do income projections so there's only a few different lenders that do these
income projections that some of our our primary lenders like td and scotia where they'll say
if you're coming out of uh you know out of medical school or something like that
and you're expected to earn a certain level of income and you're looking to purchase a home
then that is something that we can actually look at doing is do income projections so
that's not necessarily a typically a stated income it is a little bit but it just helps to
qualify somebody's income when you're potentially starting a new job and you're just new in your
field at a professional field and you can't necessarily qualify on your income if you're
professional like that especially in the medical field then they'll look at using these projections
another unique way that we can look at income for people who are self-employed
is if you're in a certain line of work for a long time so five or ten years and you switch over
to being self-employed in the identical line of work then we can actually do what is kind of like
projections we look at what you made as a salaried employee or an hourly employee in that same line
of work and then what you might be expected to earn as a self-employed individual and then we
can certainly use that we don't necessarily need a full two-year history of your self-employed income
as long as you came from a related field as long as you came from something you've worked at for
a long time establish a trend of income and then you're it's reasonable that your self-employment
income might reflect the same so pretty much an easy situation to go through something like that
now let's look at the other side of mortgage financing when it comes to
say purchases or even mortgage refinancing uh if you're self-employed and we're keeping the
loan to value so you know if you're purchasing home at 20 or 25 percent down that's called a
conventional mortgage it's not cmhc insured or generate insured it's actually a conventional
mortgage so we don't really have to follow the mortgage insurers rules and guidelines when it
comes to that we're only following the rules and guidelines with the lenders we work with
some of the banks that we do work with have relaxed guidelines when it comes to people
who are self-employed and do let us use a little bit more income than what we could have if you had
less down payment so if your income isn't quite at the level where you need it to be for an under 20
down payment type of a mortgage then increasing the down payment past 20 percent get to send us
some territory of some other lenders that will do something like a stated income product where
there look at your income a little bit more easier fashion and can use more outbacks
and then sort of help you out in a little better way so when it comes to mortgages for those that
have a mortgage that's above that 80 level and you're leaving 20 equity in the house
whether you're doing it as a refinance or doing it as a purchase of 20 or 25 down there's lots of
other options available some of the lenders that we work with will look at your income in a much
more favorable fashion but there's a little bit of a trade-off where the rates might not be quite as
low as what you expect and there might be a fear to involved in doing a mortgage like that but at
least there's some mortgage lending out there where they'll look at your tax returns and your
notice of assessments in a little bit better light when it comes to qualifying your income
one thing that you have to have in line for pretty much all of this mortgage lending no matter what
type of a mortgage you're going for whether it's less than twenty percent down or a mortgage
refinance or at 80 then you have to make sure you demonstrate that your income taxes are fully up
to date and paid so they're going to be looking at your notice of assessment and if there's a balance
owing on the bottom of the page there showing that there's some money owing to revenue canada
you're gonna have to provide some additional documentation showing that you paid that account
up to date and that there's not anything on your current taxes for the previous year
another thing that you have to have pretty much sorted out in order to get a mortgage for people
who are self-employed is excellent credit if you have any credit difficulties in the past
with credit cards or loans not even as bad as maybe a collection or anything like that even
if you've got some spotty payment history you've missed some payments over the years
it's just gonna make it that much more difficult for us to get you approved
already being self-employed and maybe showing very low income on your tax returns your notice
of assessment that's already enough of a handicap when it comes to getting a mortgage so we like to
make sure your credit's in excellent shape so that we can find you the best mortgage possible
that's about it for mortgages for those who are self-employed if you have any additional
questions or comments please put them in the comments section below or feel free to
contact me through my website i'm always happy to correspond with anybody who gets in touch with me
and once again thank you so much for joining me on my channel and have yourself a great day