Blog by Andrew Peck

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"Can self employed get a mortgage?"

The Great Loan Arranger

Yes, you can get a mortgage if you’re self-employed

In Metro Vancouver we are truly entrepreneurs.

Being self-employed is an increasing trend and one in six workers, work for themselves according to Statistics Canada.

It’s no surprise to us. I increasingly work with clients who are self-employed – accountants, bakers, dentists, electricians, garden designers and even technical writers and web designers.

Yet, despite these increasing numbers, when our self-employed clients look for a mortgage, they may be treated differently than workers with who have regular pay cheques.

How can our clients increase their likelihood of qualifying?

They should carefully prepar.

First, help them decide if they are self-employed. Mortgage lenders typically consider someone to be self-employed if they:

  • own a business alone as a sole proprietor, with a partner or as a corporation;
  • receive 25 per cent or more of your income from the business;
  • work on short contracts for different employers; or
  • are paid solely on a commission basis.

Someone who receives a regular pay cheque from an employer, even for part-time work performed for more than one employer, is not self-employed. Instead, they are considered a salaried employee.

Lenders typically determine the ability of salaried borrowers to meet mortgage payments by examining gross income, verified by pay cheques or a letter from an employer. But when determining the income of the self-employed, lenders look at net income – gross income minus expenses – averaged over a period of at least two years.

Self-employed clients must convince lenders that they are a good financial risk. To do this, your client will need documentation to verify income, including two or more years of bank statements, corporate tax returns, business balance sheets and profit-and-loss statements.

Additional documents that lenders find useful include a letter from their accountant, proof that our client pays your rent on time, and a personal balance sheet showing assets including stocks, vehicles, jewelry and debts such as credit cards or car loans.

Your client should make photocopied sets of all documents and neatly prepare them as a package. They must present themselves as an organized and responsible borrower.

Urge your clients to compare lenders or hire a mortgage broker to get the best loan package and the best rate. They must be prepared to negotiate. Even one quarter of one per cent can save or cost them a lot of money.

The ability of our self-employed clients to get a mortgage with the best possible interest rate depends on their ability to maintain payments and their preparation. It’s just good client service for us to help them.

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