Self-Employed Mortgage Guide: Documentation & Qualification
Being self-employed doesn't mean you can't get a mortgage—but the process is more complex than for traditional employees. With the right documentation and preparation, you can secure competitive rates. Here's everything you need to know.
Why Self-Employed Mortgages Are Different
The Challenge: Lenders need to verify your income, but self-employed individuals often:
- • Write off business expenses (reducing taxable income)
- • Have variable income month-to-month
- • Lack traditional pay stubs and T4s
- • Mix personal and business finances
Required Documentation
Essential Documents (All Applicants)
- ✓ 2 years of T1 Generals (personal tax returns)
- ✓ 2 years of Notice of Assessments from CRA
- ✓ Business license or incorporation papers
- ✓ 90 days of business bank statements
- ✓ Letter from accountant confirming income
- ✓ Credit report authorization
If You're Incorporated
- ✓ 2 years of corporate tax returns (T2)
- ✓ Financial statements (audited or review engagement)
- ✓ Articles of incorporation
- ✓ Proof of ownership percentage
If You're a Sole Proprietor
- ✓ Statement of Business Activities from tax returns
- ✓ Business bank statements
- ✓ Contracts or invoices showing income
How Lenders Calculate Your Income
Lenders typically use a 2-year average of your net income (after expenses). Here's the formula:
Income Calculation Formula
Year 1 Net Income: $80,000
Year 2 Net Income: $90,000
Total: $170,000
÷ 2 years: $85,000
Qualifying Income: $85,000/year
Note: Some lenders add back depreciation and other non-cash expenses
3 Types of Self-Employed Mortgages
1 Traditional A-Lender Mortgage
Best For: 2+ years of strong, documented income
Down Payment: 5-20%
Rates: Standard (best rates)
Requirements: Full income verification, good credit (680+)
2 Stated Income Mortgage (B-Lender)
Best For: Write off many expenses, newer business (<2 years)
Down Payment: 10-20%
Rates: 0.5-2% higher than A-lenders
Requirements: Letter from accountant, bank statements, good credit (600+)
3 Private Lender Mortgage
Best For: Credit issues, irregular income, immediate needs
Down Payment: 15-35%
Rates: 7-12%+ (short-term solution)
Requirements: Equity in property, exit strategy
Tips to Improve Your Approval Odds
Do This
- ✓ Keep personal and business finances separate
- ✓ Maintain 2 years of tax returns
- ✓ Keep credit score above 680
- ✓ Save for 20%+ down payment
- ✓ Work with accountant year-round
- ✓ Document all income sources
- ✓ Apply 3-6 months before buying
Avoid This
- ✗ Writing off everything possible
- ✗ Inconsistent business income
- ✗ Missing tax filings
- ✗ Mixing personal/business expenses
- ✗ Late payments on any accounts
- ✗ Applying with less than 2 years history
- ✗ Not having bank statements ready
Special Considerations
New Business (Less than 2 Years)
Some lenders accept 1 year of history if you were previously employed in the same field. Work with a broker to find these specialty programs.
Multiple Income Streams
If you have employment income + self-employment income, lenders can combine them. This may qualify you for better programs.
Co-Applicants
Adding a co-applicant with traditional employment can strengthen your application and potentially get you better rates.
Why You Need a Mortgage Broker
Self-employed mortgages are complex, and not all lenders offer the same programs. A specialized mortgage broker can:
- ✓ Find lenders who specialize in self-employed borrowers
- ✓ Package your application to highlight income strengths
- ✓ Navigate stated income and alternative programs
- ✓ Save you time (and often get you better rates)