Can You Receive a Mortgage if You Are Self-Employed?

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February 22, 2022

Obtaining a mortgage when you are self-employed has always been a difficult process when compared to salaried employees. Since more than 15% of Canadians are currently self-employed, it is crucial to understand how to apply for a mortgage and receive approval. As leading providers of comprehensive lending solutions for all types of individuals, the team at PHL Capital knows how complicated the mortgage approval process can be. That is why we have provided some information to demonstrate that you can receive a mortgage if you are self-employed, so long as you meet certain criteria and provide certain documents.

Learn how to choose the right mortgage lender.

3 Important Questions and Answers About Mortgages for Self-Employed Borrowers

If you are self-employed and want to apply for a residential mortgage, it is important to understand the answers to the following questions:

1. What do Lenders Classify as “Self-Employed?”

Most mortgage lenders at banks and credit unions consider a borrower to be self-employed if they:

  • Run a business alone as a sole proprietor, with a partner, or as a corporation.
  • Receive 25% of their income or more from the business.
  • Work on short-term contracts for different employers.
  • Are paid solely on a commission basis.

An individual is not considered to be self-employed if they receive a regular paycheque from an employer, even if they perform part-time work for more than one employer.

2. How do Lenders Evaluate Self-Employed Borrowers?

Lenders typically evaluate all potential borrowers based on the size of their down payment and their ability to repay the mortgage, though there is one key difference between salaried and self-employed borrowers. Salaried borrowers must verify gross income through paycheques or a letter from an employer while self-employed borrowers must verify their net income (gross earnings – business expenses).

For example, if a self-employed individual makes $100,000 annually in gross earnings but writes off $25,000 for business expenses, they will have a net earning of $75,000 for that year. Unless they have documentation to convince lenders their net income is higher, they will be treated similarly to a salaried employee that makes $75,000 each year.

3. What Should be Provided to Lenders?

If you are self-employed and want to be approved for a mortgage, you need to prove that you operate a consistently viable business. As proof that you have a viable business, you need to have a good credit rating, make timely payments on loans and monthly bills, and will need to provide the past two years of the following documents:

  • Monthly bank statements
  • Corporate tax returns
  • Business balance sheets
  • Profit-and-loss statements
  • Business credit card statements
  • Credit references or letters from financial institutions.

These documents will help lenders determine if your business and income are consistent enough for a mortgage.

To learn more about our lending and mortgage solutions, get in touch with the team at PHL Capital Corp. We can be reached through our online contact form and will be happy to answer any questions you may have regarding our lending solutions.