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How to get a mortgage if you’re self-employed

If you’re self employed you’re part of an increasing trend. The number of self-employed workers in the Greater Vancouver area has now reached 13.2 per cent of all workers and is expected to continue to grow according to Andrew Ramlo at the Urban Futures Institute.

It’s no surprise to REALTORS® who increasingly work with self-employed clients – from accountants to electricians, from garden designers to chiropractors.

Yet, despite these increasing numbers when the self-employed go shopping for a mortgage, they may be treated differently than workers with who have regular paycheques.

You can increase your chances of qualifying by carefully preparing.

First, find out if you are self-employed. Mortgage lenders at financial institutions such as banks and credit unions will consider you to be self-employed if you:

• own a business alone as a sole proprietor, with a partner or as a corporation;

• receive 25 per cent or more of your income from the business;

• work on short contracts for different employers; or

• are paid solely on a commission basis.

You are not self-employed if you receive a regular paycheque from an employer, even if it is part-time work performed for more than one employer. Under these circumstances you are considered a salaried employee.

Lenders typically determine the ability of salaried borrowers to meet mortgage payments by examining gross income, verified by paycheques or a letter from an employer. But when determining the income of the self-employed, lenders look at net income – gross income minus expenses – averaged over a period of at least two years.

You must convince lenders that you are a good financial risk. To do this, you will need documentation to verify income, including two or more years of bank statements, corporate tax returns, business balance sheets and profit-and-loss statements.

Additional documents that lenders find useful include a letter from your accountant, proof that you pay your rent on time, and a personal balance sheet showing assets such as stocks and debts such as credit cards or car loans.

Make photocopied sets of all your documents and neatly prepare them as a package. Since you will likely shop for a mortgage at different financial institutions, you’ll want to present yourself as an organized and responsible borrower.

Compare lenders to get the best loan package to meet your needs, combined with the best rate. Remember to negotiate. Even one quarter of one per cent can save or cost you a lot of money.

As a self-employed business owner, getting a mortgage with a good interest rate depends on your ability to maintain payments and your preparation.