Banks & Mortgages When You’re Self-Employed

Self-employed woman doing her budget in her fashion design office

Tighter Rules for Self-Employed People

Mainstream lenders have tightened self employed qualifications. As a result, many self-employed borrowers who tax-manage their earnings (i.e., don’t pay themselves enough salaries or dividends) will find mainstream stated income programs ineffective.

Self-Employed vs. Employee: Two Case Studies

Self-Employed: a person who sets up a business, in the hope of profit.

Employee: a person employed for wages or salary.

Okay, so you buy a house or need a mortgage and you call your bank/ broker. If you’re an employee and you earn a salary, it’s fairly straight forward. But what if you’re self-employed?

If you’re self-employed, this is where it gets interesting! A few years ago, the government implemented new rules that changed the game.

Case 1: Self-Employed

Client is self-employed for about 15 years with excellent credit

  • Approaches their bank for a 900K mortgage
  • The bank appraises the house for 1.2M
  • Sales of about $600,000
  • Personal income of $50,000

Result: The bank declines the mortgage because the client cannot prove enough income to qualify under their lending guidelines.

Case 2: Employee

Clients are a married couple, first time buyers

  • Couple buy a house for about 400K
  • Wife has income of 70K and excellent credit
  • Husband is new to Canada and makes $13/hr. employed for 4 months
  • They have 40,000 down payment

Result: The bank approves the mortgage at below 3%.

Is it Fair? Who would you lend YOUR money to?

Fortunately, there are alternatives for self-employed people to secure a mortgage. Contact us today to explore your options!