Mortgages Designed for the Self Employed

It’s a favourite daydream of working Canadians: to go intoSource: Mortgage Intelligence

business for yourself! For some Canadians who are self-employed,

their situation is the consequence of corporate

downsizing. For others, it is a carefully planned decision to

leverage their knowledge and experience for themselves

and improve their own bottom line.

Typically a very innovative and energetic bunch, the selfemployed

now comprise approximately 16% of Canada’s

total workforce. We like to imagine that these are the lucky

folks who are living their entrepreneurial dreams.

Talk to self-employed Canadians about getting a mortgage

and many will tell you that the dream can have downsides.

These individuals – who may actually be more financially

successful than ever – often do not fit traditional mortgage

lending criteria. It can make mortgage shopping a frustrating

and, for some, a humiliating experience.

Without an established stream of pay stubs from an employer,

lenders have none of the traditional assurances that

you can meet your mortgage obligations. You may be expected

to undergo a long and complicated process to prove

your ability to service your debt. Lenders want to verify your

employment and your income – not a simple task for someone

who is self-employed. Lenders are also looking ahead;

they will want some evidence that payments can be made

for the life of the mortgage – not just over the next year.

Most frustrating of all, small business owners are usually

expected to provide detailed financial statements for their

business for the past two years. What picture do those

statements paint for the lenders? An astute business owner

with a good accountant will work hard to minimize taxable

income for the business: a smart financial management

strategy. When lenders plug those figures into their lending

formulas – they may conclude that you are a high-risk

borrower.

The problem is not with the self-employed as a category;

it is with lenders’ traditional criteria and their inability to

reflect the different income environment of a self-employed

homebuyer.

Thankfully, the lending landscape has adapted to this

market need. Certain lenders have designed mortgage

products precisely for this very attractive market segment.

Naturally, the lender will still need to assess risk, but the

criteria are tailor-made for the self-employed and

essentially take a common sense approach to the definition

of income. You could qualify for your mortgage based

solely on what you state your income to be, and after

confirmation that your lending ratios, credit and tax liabilities

are in good order. It can be that quick and easy!

As more lenders enter this market niche, you’ll find that not

all products are equal. As a group, the self-employed often

delegate to other professional service providers and this is

a situation where you may want to seek advice from a

mortgage professional so you get the best mortgage for

your needs.

For the self-employed – who build their own success on

understanding the needs of their customers – the new

mortgages designed for them are good business. And

they’re also welcome news to the growing number of

Canadians who are building their own success in their

own way.