Many potential homeowners are self-employed or may work for somebody else on a commission basis and this often means their income will fluctuate. In this case it’s typically hard to prove what their actual monthly or annual income is. This can sometimes make it a bit more difficult to get approval for a mortgage application.
The mortgage institution or private lender will need to confirm your income before approving the loan and this can still be done even though you don’t receive a regular paycheque. Just be aware that any income that hasn’t been officially reported won’t be able to be used on your mortgage application form.
What documents do I need in order to prove my income?
You will usually have to show certain documentation such as personal and business income tax returns, a business licence, articles of incorporation, notice of assessment from the CRA, and proof of assets. If you’re self-employed and are planning on applying for a mortgage in the future, you may want to consider paying yourself a salary instead of relying on dividends as your income. Of course, the bigger your salary is the better chance you’ll have of obtaining a mortgage. In addition, the fewer deductions you show on your income tax will typically result in a larger income. If you’re considering this, you should speak with a tax professional since a larger salary with fewer deductions will result in more taxable income even though it may look better in the eyes of the mortgage lender.
Keep Good Records
Self-employed mortgage seekers should always keep excellent financial records as well as up-to-date profit and loss statements. You may want to keep track of your transactions and finances via a computer software program as it will keep everything current. Be aware that applying for a mortgage as a self-employed borrower may take a little longer to process. Once you have provided the lender with the necessary documents and paperwork they may still ask to see more and could also have more questions for you.
Boost Your Credit Score
Since your credit score goes a long way in obtaining a mortgage, especially if you’re self-employed, you should always make sure you pay your bills in a timely manner and boost the score as high as you can. The lender will be able to see that even though you’re self-employed, you also possess a good credit history and aren’t seen as a high risk.
Make a Large Down Payment
Making a large down payment on your home is always a good way to impress the lender as they realize you have more at stake and are less likely to default on your payments. It also shows the lender that you have accumulated the funds through your business employment. It’s also a good idea to show what your liquid assets are since the lender can see that you have assets on hand in case your self-employment income is ever reduced.
It’s a good idea to enlist the aid of an experienced mortgage broker since not all financial institutions and lenders will treat you the same. Even though you’re self employed you should shop around for the best interest rates available in your area. There’s no harm in contacting multiple businesses for free quotes and your broker will be able to do this for you while hunting down the best deal. Remember, your mortgage broker works for you and not the lender and therefore have your best interests at heart.
Have a question about getting approved for a mortgage if you are self-employed? MortgageMeister.com is a Toronto based mortgage lending company that helps families all over Ontario get the financing they need to move into their dream home. Contact us today to learn more.