Are you an entrepreneur who aspires to own a home? There’s a misconception out there that entrepreneurs can’t qualify for mortgages. While you may need to provide a few more documents, that simply isn’t the case. There are many wholesale lending solutions out there right now, so entrepreneurs who have been in a business for a while with a stable track record can certainly qualify for a mortgage just like a salaried employee.
Qualifying for a Mortgage When You’re Self-Employed
When qualifying for a mortgage as someone who’s self-employed, it’s just like when you’re a salaried employee. Lenders will want to look at four main factors on the mortgage application: your income, credit, down payment and the property itself. It’s the first factor that’s slightly different when you’re self-employed.
When you’re a salaried permanent full-time employee it’s pretty easy to get a mortgage. All you need to provide in most cases is a letter of employment and most recent paycheque. However, when you’re self-employed it’s not so simple.
Running your own business is viewed by lenders as more risky than working for a company. As such, prime mortgage lenders want to see that you’ve been in business for at least two years and filed two years of tax returns before they’ll lend to you in many cases.
This usually involving providing the two most recent years of personal T1 generals along with notices of assessment to the mortgage lender if you operate your business as a sole proprietorship.
Let’s say you’re self-employed, but you operate your business as a corporation. In addition to the above mentioned documents, lenders will usually want to see corporate financial statements as well.
A mortgage lender will then review all of those documents and then decide whether to grant you the initial mortgage approval or not.
Tax Credits and Deductions
Sometimes it can seem like accountants and mortgage brokers are at odds. The accountant wants to help minimize your taxes payable. This means claiming as many tax credits and deductions as possible.
Entrepreneurs are almost always entitled to a lot more tax credits and deductions than the average salaried employee. If you run a business out of your home, you can claim a portion of your household expenses. This includes your heat, hydro, water, property taxes and mortgage interest.
A problem can arise if you are only showing minimal income on your tax return. You can run into issues getting a mortgage. You might not be able to qualify for very much or not qualify at all.
Once you decide you want to own a home, sit down and have a conversation with your accountant. Let your accountant know you’re planning to buy a home. That way you can plan how much income you’re going to show on your tax return for mortgage purposes, so you can buy the home you want to be able to over the coming months and years.
Brought to you by Sean Cooper