As someone who is self-employed, you probably have your hands full. Whether you run your own business or freelance for someone else’s, there are many factors you have to deal with on a daily basis to ensure you collect enough income to stay afloat. Adding home ownership to the mix can be quite the accomplishment. So, how does someone who is self-employed get a mortgage?
Generally, lenders are weary to provide mortgages to those who are self-employed, especially those who are just starting out. When your taxable income has been reduced, lenders see you as more of a risk than someone who draws a steady salary. However, that doesn’t mean that you should shy away from applying for a mortgage if you’re self-employed.
Yes. In order to qualify for funding when you are self-employed there are many ways you can look attractive to potential lenders.
Mortgages need to be paid monthly. No matter where you get your income, you need to ensure you have enough to cover your monthly mortgage payments. For some who are self-employed, they collect a variable income. You need to plan your mortgage payments around your variable income. If one month you bring in $1,700 but the next you bring in $2,900, you need to ensure your monthly mortgage payments don’t exceed what you would make in your slowest months.
When you are a salaried worker, a chunk of your pay goes towards your taxes already. When you are self-employed you are in charge of making those deductions. No matter what industry you work in, you must pay your taxes when you are self-employed. Potential lenders will ask to see income documentation that dates back at least two years. Why? They want to see your personal income tax returns to make sure you’re all paid up.
Normally, a credit score of 620 is required to get a conventional mortgage. For those that are self-employed, the higher your credit score, the better. Lenders see you as a risk but if your credit score hovers around 700 they’ll take that into consideration when you apply for your mortgage. To maintain an excellent credit score, pay off everything on time. This goes for phone bills, car payments, credit card debt, and everything else you owe.
Your bank probably treats you well. You have a business account set up with them and they value you as a client. Nonetheless, when it comes to finding the right lender, it’s better to work with a broker. A mortgage broker can find the best package to suit your needs, when you’re self-employed lenders may not be so keen to provide funding to help you purchase your home. Your broker has built relationships with many lenders and although they may not know you, they definitely know and trust your broker.
Remember, the more financial strength you can show, the better your chances of being approved for a mortgage when you’re self-employed.Back
Canada’s mortgage website
Your home is your most valuable asset. It is probably the single largest investment you will make in your lifetime. Your home is more than a place to rest your head and raise a family. Your home contains equity. It is a treasured resource and in some cases, can even be used as an ATM (aka cash back mortgages and HELOCs – don’t worry we’ll get there).
We All Need a Mortgage
Everyone who is looking to purchase a home will need a mortgage. But, what is a mortgage exactly and why do you need it? Besides being the term to describe a loan secured by real estate, a mortgage allows you to access funding to procure your dream home.
As the housing market continues to pummel forward despite the pandemic, new homeowners are shopping around for the best home loan options. Read More
If you are looking to buy a home, but are over 40 years old, you may be wondering if lenders will be less likely to approve your mortgage... Read More
As a homeowner, you may be faced with some different scenarios that cause you to consider breaking your mortgage contract early. Read More
Debt is like an infection; it sneaks up on you. It overwhelms you, and then you have a problem. Read More