Thursday, May 23, 2013

Why it’s harder for the self-employed to get a mortgage

Here is a fantastic article from theStar.com that explains the ins and outs of getting a mortgage if you're self employed.

Alberta has a large number of entrepreneurs and, consequently, I get a fair amount of inquiries from self employed people trying to obtain a mortgage. Here are some tips to improve your odds of getting the mortgage you've applied for:

1. Be organized: You'll need to provide your full tax returns (T1 Generals) along with the corresponding Notice of Assessment for the last two years that detail your expenses and write offs  (called the Statement of Business Activities). I often talk to applicants who can't locate their tax returns or Notice of Assessment because they have been misplaced. This will delay your file unnecessarily. It's best to locate them before you apply for a mortgage.
2. Pay your taxes: It is important to not show any tax arrears. Not only will you not get the mortgage without bringing your taxes up-to-date, it just generally doesn't look very good to a lender when you owe money to Revenue Canada. If you do happen to have a balance owing, ensure that you have the funds to pay the amount owing in full as this will be a requirement of funding your mortgage. Better yet, pay the balance owing before you apply for the mortgage.
3. Down payment: I have had several inquiries from self employed people who do not have a down payment. If you are self employed you need a down payment. You'll need a MINIMUM of 5% down if you can prove your income via your tax returns for the last two years and a 10% MINIMUM down payment if you cannot prove your income.
4. Credit: If you are self employed and are buying a house with only 5 or 10% down you need to have good credit.
5. Length of time in business: Generally speaking, most lenders and mortgage insurers want to see that you have been in business for a minimum of 2 years to show you have a track record of steady earnings. If you just started a business a month ago, you probably will not be able to buy a home for a little while unless you have a much larger down payment (15% or more).
Buying a house and qualifying for a mortgage when you're in business for yourself requires a bit more patience and pre-planning than it does for the average home buyer but it is certainly not impossible. If you have any questions regarding obtaining a mortgage when you're self employed please contact me.

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