Mortgage for the Self-Employed in Canada: What You Need to Know to Get Started

Being your own boss definitely comes with its set of perks; flexibility, independence, and the chance to build a meaningful business. However, when it comes to buying a house, self-employment can have its own challenges.

If you've ever wondered, ‘Can a self-employed person get a mortgage?' The answer is yes but it's not an easy feat. Getting a mortgage as a self-employed person is difficult but it's not impossible and the proof is in thousands of self-employed people buying homes every year. You just need to fully understand and know what you're getting into.

If you're reading this blog because you run your own business and want to buy a house, you're in the right place. In this guide, we will explore everything you need to know about getting a mortgage when self-employed, whether you're an entrepreneur, a freelancer, or a small business owner.

Why Is It Harder for the Self-Employed to Get a Mortgage?

Let's cover first things first; being self-employed automatically puts you in the ‘high-risk' category for lenders. When traditional employees apply for a mortgage, they typically show pay stubs, T4s, and employment letters.

But for the self-employed, income is often irregular, and taxes are managed differently. Many self-employed Canadians also deduct expenses to reduce taxable income, which can make their net income look lower on paper.

To a lender, this raises red flags. Doesn't matter if you make $200,000 a year. Doesn't matter if your business has been profitable for a decade. In their eyes, you're unpredictable. They want consistency, predictability, and documentation. So while it's not impossible, self-employed and mortgage applications require a little extra effort to prove creditworthiness.

A friend who is a contractor learned this lesson when he applied for his first mortgage. He'd been making six figures for three years running his own electrical business. However because his income varied month to month due to getting bigger projects in summer and slower workflow in winter, the bank treated him like he was unemployed half the year.

Can a Self-Employed Person Get a Mortgage in Canada?

Here's the short answer: absolutely yes. Self-employed individuals are eligible for both insured and uninsured mortgages, as long as they meet the lender's criteria.

The longer answer? It's going to require more patience, more paperwork, and probably more money down than you'd like. Self-employed mortgage rates are higher too. The documentation required is typically more detailed, and you may be subject to tighter scrutiny.

The good news is that lenders are starting to understand the evolving nature of work. There are even mortgage advisors for self-employed borrowers who specialize in helping clients just like you.

The thing is that different lenders have completely different attitudes toward self-employed borrowers. The big banks are usually pretty rigid about their requirements. Credit unions and mortgage brokers are often much more flexible.

You just need to seek a lender that actually takes the time to understand your business model. The key is knowing where to look and how to present your financial story in the best possible light.

Home Mortgage for Self-Employed: What Lenders Want to See 

After going through this process many times, we've figured out what lenders really care about when you're self-employed. It's not just about how much money you make, it's about proving you'll keep making it. Here are some self-employed mortgage requirements that lenders seriously consider:

Two years of tax returns

Not your gross income, but what you actually reported to the IRS. This is where a lot of self-employed people get tripped up. We write off everything we can, and should, but that lower taxable income hurts us when applying for mortgages.

Bank statements

They want to see consistent deposits and healthy cash flow. If your business account looks like a roller coaster with huge deposits followed by big withdrawals, be prepared to explain every transaction.

Profit and loss statements

Ideally, it is prepared by a CPA, showing your business is profitable and stable. Don't try to wing this with a spreadsheet you made yourself.

Business license and registration

Proof that you're a legitimate business, not just someone doing odd jobs under the table.

The frustrating part is that even with all this documentation, you might still get a higher interest rate or need to put down more money.

Self-Employment and Mortgage: Required Documents

If applying for a home mortgage for self-employed individuals in Canada, here's what the lenders usually ask for:

• Two years of personal tax returns
• Two years of business tax returns
• Three months of personal bank statements
• Three months of business bank statements
• Year-to-date profit and loss statement
• Balance sheet of the business
• Letter from CPA verifying income
• Contracts for upcoming work to show future income
• Business license
• Articles of incorporation

The lesson here is to start gathering documents early, months before you want to start house hunting.

Credit Score and Down Payment Expectations

When you're self-employed and mortgage shopping, your credit score and down payment become even more important:

Credit Score:

Most lenders want to see a credit score of 680 or higher. If your score is lower, you may still qualify, but your interest rate might be higher.

Down Payment:

• For insured mortgages with less than a 20% down payment, the maximum property value must be under $1 million and your debt ratios must be in line with insurer guidelines.
• For uninsured mortgages with a down payment of 20% or more, you'll have more flexibility but may face stricter documentation requirements.

Experienced Mortgage Advisors for Self Employed Individuals

The best thing you can do to increase your mortgage loan approval is to work with a broker who understands all the nuances of self-employed mortgage applications. Not all brokers understand self-employed borrowers. Some loan officers see self-employed on an application and immediately think of it as a ‘problem case'.

But there are mortgage advisors for self-employed people who specialize in exactly this situation. They understand business finances, they know which lenders are friendly to entrepreneurs, and they can help you present your income in the best possible light.

They also know exactly which documents to request, how to structure your application, and which lenders would be most likely to approve your application.

If you're going the broker route, ask specifically about their experience with self-employed borrowers. Get references. Talk to other business owners they've helped. Seek multiple brokers and also remember that this isn't the time to go with whoever offers the lowest rate, you want expertise.

Alternatives for Mortgage for Self-Employed Individuals

If you've been turned down by a major bank in Canada, don't lose hope just yet. Traditional mortgage qualification might not work for you, but there are alternatives that many self-employed people don't know about. Canada has a wide network of alternative mortgage providers who are more flexible.

Here are some options that many self-employed individuals don't know about:

• Bank statement programs: Some lenders will qualify you based on your business bank deposits instead of tax returns. 
• Asset-based lending: If you have significant assets such as investment accounts, business equity, and real estate, some lenders will consider this instead of a monthly income.
• Co-signers: Sometimes bringing in a co-signer with a stable income can help you get the loan.

Be Prepared and Proactive

Remember that being self-employed doesn't just automatically disqualify you from homeownership. It just means you need to be more strategic about how you approach it.

You will need more documentation, and you might pay higher rates or put down more money. The process will probably take longer and be more frustrating than you'd like. But millions of self-employed people own homes.

The key is understanding what lenders want, preparing accordingly, and working with professionals who understand the self-employed market. We specialize in helping entrepreneurs, freelancers, and business owners secure the financing they need. Contact us today to learn more about how we can help you secure a mortgage loan as a self-employed individual in Canada.