Mortgages for the Self Employed
There are essentially two types of self- employed borrowers, those that can prove their net taxable income and those who cannot prove net taxable income, and are industry known as “stated income” borrowers.
Borrowers that can prove their net taxable income, understandably have an easier time qualifying for traditional financing through financial institutions. Borrowers will be expected to provide a business license, last 2 years tax returns as well as last 2 years Notice of Assessments showing enough net taxable income to qualify. The Notice of Assessments must also indicate no income taxes owing. Excellent credit and down payment from their own resources will also be a requirement to qualify.
Stated income borrowers who are unable to prove their net taxable income can still obtain financing through a traditional financial institution, however, there are more stringent underwriting guidelines for qualifying. To qualify as a stated income borrower, the lender will ensure the borrowers have a minimum down payment of 10% from their own resources, have excellent credit with a minimum credit score of at least 680, and the income stated must make sense for the occupation; meaning, a reasonable income level for the business type. They will also be expected to provide a business license, last 2 years tax returns as well as last 2 years Notice of Assessments showing no income taxes owing. The lenders will review the tax returns and stated income very diligently as net taxable income cannot be proven on their Notice of Assessments.
Self-employed borrowers who do not meet the above lending criteria’s are still able to obtain financing through alternative and private lenders at very reasonable rates and fees. Underwriting will also be largely based on the subject property. Lenders will look to lend on highly marketable residential real estate, so that in case of default, the property has mass appeal to prospective purchasers.
All lenders review self-employed borrowers on a case by case basis. Obtaining a pre-approval by working with a licensed mortgage professional prior to purchasing your home will put you into the strongest financial position to negotiate the best deal on your home, and most importantly, provide a stress free mortgage experience, knowing your financing and all documentation is approved by the lender prior to purchasing your dream home.