Approximately 15% of Canadians are self-employed, making this an important segment in the mortgage and financing space. When it comes to self-employed individuals seeking a mortgage, there are some key things to note as this process can differ from the standard mortgage.

What are self-employed mortgages?

Self-employed is defined as working for one’s self. It can also refer to individuals who work for themselves instead of an employer, but draw income from a trade or business that they operate personally.

Qualifying for a Mortgage

To obtain a mortgage as a self-employed individual, most lenders require personal tax NOA and T1 generals from the past two years. Banks often evaluate self-employed income by focusing on net income, which can limit your borrowing capacity.

However, some lenders offer a more flexible approach. They may use just six months of income statements over a 12-month period and double your gross deposits to calculate your annual income. This method provides a clearer picture of your financial situation.

Self-Employed Categories

1. For those self-employed individuals who cannot provide the Revenue Canada documents, you will be required to put down 20% and may have higher interest rates.

2. If you can provide the tax documents and don’t have enough stated income, due to write-offs, then you have to do a minimum of 10% down with standard interest rates. If you are able to put down less than 20% down payment when relying on stated income, the default insurance premiums are higher.

3. If you can provide the tax documents, and you have high enough income, then there are no restrictions.

Documentation Requirements

For those individuals who are self-employed, you must provide the following, in addition to your standard documentation:

• Proof of business ownership - business registration certificate
• Personal T1 Generals and NOAs for the last 2 years
• Business T2 or Accountant prepared Financial Statements (Income statement and Balance Sheet) and NOAs for the last 2 years
• Potentially 6-12 months of business bank statements

CMHC Self-Employed Program

The CMHC Self-Employed program is a mortgage loan insurance program offered by the Canadian Mortgage and Housing Corporation (CMHC) for self-employed individuals seeking to purchase or refinance a home. The program also offers low down payment options and helps ensure that self-employed borrowers have access to mortgages.