Navigating the mortgage process can be a daunting task, especially for self-employed individuals or those with unique financial situations. Whether you’re a freelancer, entrepreneur, or just someone whose income isn’t as traditional, securing a mortgage can feel like an uphill battle. However, rest assured that it’s absolutely possible to get approved for a home loan – it just takes a little extra knowledge and preparation.
At Steven Murdoch Mortgages, we specialize in helping our clients with unique borrowing situations get approved and secure the financing they need. Here’s your guide to getting approved for a mortgage, even if you’re self-employed or in a non-traditional financial situation.
1. Understanding the Challenges of Self-Employed Borrowers
Self-employed individuals often face challenges when applying for mortgages. Lenders typically prefer the stability of a regular paycheck, but many self-employed people don’t have that luxury. Instead, their income may fluctuate from month to month, or they may have multiple income streams.
But just because you don’t have a traditional job doesn’t mean you can’t qualify for a mortgage. Lenders look at your overall financial health, not just the consistency of your pay. Here are a few key aspects that will influence your application:
- Income Verification: Unlike salaried employees, self-employed borrowers must provide proof of income in different ways. This usually includes two years of personal and business tax returns, Notice of Assessment (NOA) documents from the Canada Revenue Agency (CRA), and financial statements for your business.
- Tax Deductions: Many self-employed individuals use tax deductions to lower their taxable income. While this helps reduce your tax bill, it may also lower the income amount used for mortgage qualification. Keep this in mind when planning your mortgage application, as some deductions (such as expenses for home office or business-related costs) might affect your mortgage approval.
- Down Payment: A higher down payment can help strengthen your application. If your income is less predictable, having a larger down payment demonstrates financial responsibility and reduces the lender’s risk.
2. Unique Borrowers: Non-Traditional Income Sources
In addition to self-employed borrowers, many Canadians have non-traditional income sources. This can include seasonal work, commissions, rental income, or other forms of earnings that might not be fully understood by traditional mortgage lenders.
To improve your chances of getting approved as a unique borrower, you’ll need to be transparent about your income streams and provide supporting documentation:
- Rental Income: If you receive income from renting out property, make sure to include the lease agreements and proof of consistent rental payments. Lenders will often use 80-100% of the rental income to calculate your mortgage eligibility.
- Commission-Based Income: For individuals who earn a significant portion of their income through commissions (real estate agents, sales professionals), showing a consistent track record of earning similar commissions for a few years can help. Lenders want to see stability over time.
- Seasonal Employment: Seasonal workers (e.g., construction, landscaping) may find it harder to get approved if their income is inconsistent. However, with proper documentation and a solid history of seasonal work, many lenders will consider the average income over the past couple of years.
3. The Importance of Credit Score
Your credit score plays a crucial role in your mortgage approval, no matter your employment type. However, for self-employed and unique borrowers, it becomes even more important. Lenders may rely on your credit score to gauge your financial responsibility since your income is less predictable.
Ensure that your credit score is in good shape before applying for a mortgage. Here are a few tips to help you boost your score if needed:
- Pay bills on time: Timely payments to credit cards, loans, and other bills will positively impact your credit score.
- Keep credit utilization low: Aim to use less than 30% of your available credit to demonstrate responsible credit usage.
- Monitor your credit report: Regularly check your credit report to identify and correct any inaccuracies.
4. Work with a Mortgage Broker Who Understands Your Needs
One of the best ways to navigate the mortgage process as a self-employed or unique borrower is to work with a knowledgeable mortgage broker who understands the ins and outs of non-traditional applications. At Steven Murdoch Mortgages, we specialize in working with individuals who have unique financial circumstances. We have the expertise to connect you with lenders who are willing to consider your specific situation.
A mortgage broker can help by:
- Understanding your financial situation: We take the time to understand your income, expenses, and financial history, ensuring we present a strong case to lenders.
- Explaining the process: We simplify the mortgage application process and explain what to expect at each stage, reducing your stress and uncertainty.
- Access to a wide range of lenders: With our network of lenders, we can shop around for the best rates and terms tailored to your unique needs.
5. Additional Tips for Getting Approved
- Document Everything: The more information you can provide to lenders, the better. In addition to tax returns, financial statements, and credit scores, include anything that can demonstrate your ability to repay the loan. This could be long-term contracts, letters of reference from accountants, or a business plan if you’re self-employed.
- Be Prepared for a Larger Down Payment: If your income isn’t steady or your credit score needs improvement, offering a larger down payment can help mitigate the lender’s risk. This will also increase your chances of securing a favorable mortgage rate.
- Consider Alternative Lenders: If traditional banks are hesitant, consider alternative lenders who specialize in self-employed or unique borrowers. These lenders may have more flexible criteria and a better understanding of your specific financial situation.
Securing a mortgage as a self-employed or unique borrower might require more effort, but it is absolutely possible. By understanding the challenges you may face, gathering the necessary documentation, and working with an experienced mortgage broker, you can successfully navigate the process and secure the financing you need.
At Steven Murdoch Mortgages, we’re here to guide you through the mortgage application process, whether you’re self-employed, a freelancer, or have unique income sources. We believe everyone deserves the opportunity to own their home, and we’re committed to helping you achieve that goal.
If you’re ready to take the next step in securing your mortgage, get in touch with us today, and let’s make your dream of homeownership a reality.
