Buying A House When Self Employed

Fivewalls: Buying A House When You Are Self Employed

Buyers, Tips & Advice
Last Updated: Mar 18, 2019

Being self-employed has a lot of perks, like setting your own hours, creating your own work setting and choosing the line of work you love to do. But when it comes to buying a house when you are self-employed, you may run into some challenges.
 

The Mortgage Pre-Approval Process

Each lender will require you to have different documentation proving your income and may even want statements from long-term customers/clients. It will pay off in the long run when you get the keys to your new home.

It is probably in your best interest to hire an accountant (specially to help with all the paperwork). They can tell you exactly what you will need to acquire. Most lenders will want a minimum of two years of records that include:
 

  • T4's
  • Pay stubs
  • Notice of Assessment
  • Credit history
  • If you are sole-owner of company
     

Overall, you just want to prove your income is stable and you will meet certain expectations every month to make your payments.
 

You May Be Subjected To Higher Rates

self employed, mortgage, buying a house, buying a house when self employed, getting mortgage when self employedWhen you are applying for a mortgage as someone who is self-employed, the lender may consider you a high-risk borrower because your income is not as predictable. You may qualify for a smaller loan but be subject to higher interest charges. If you pay a higher down payment, your charge could be less.

If you do not have a lot of documentation, that could also result in higher interest charges and having to pay a larger down payment. If your credit score is poor, you may not even be approved at all.

If your credit score is poor, there are always other options available to you, though it may be through a non-traditional lender instead. You could always have a co-signer to improve your chances, or if you have a business partner both of you can sign.
 

Your Debt-To-Income Ratio

A debt-to-income ratio is the percentage of your income you are using to pay off other debts, which would be your credit card, student loans, car payments, etc. When you are applying for a mortgage, you typically want your debt-to-income ratio to be lower than 35%, especially when you are self-employed.
 

Things To Consider

Because it can be a tricky process of obtaining a mortgage approval when you are self-employed, seeking a mortgage broker or accountant to help you may make your life easier. A lot of paperwork and documentation will be involved, so receiving professional help can ensure your paperwork is error-free and you are handing in everything you need too.

If your credit score is poor, trying to improve it before even applying for a mortgage. This will help tremendously, especially if you are hoping for a certain amount and lower interest rates.

You may need to come up with a higher down payment, but if you prove to the lender you have the funds and have extra cash in your bank account, they may be more willing to qualify you for a higher mortgage.
 

Getting a mortgage loan when you are self-employed could mean higher interest rates and having to pay a higher down payment, but if you can prove your business is profitable and your income is stable, there is no reason for you to have to worry about not getting approved for a mortgage. And whether you are self-employed or not, your chances are lower if your credit score is poor and if the proper documents are not shown.

It is not impossible. Especially with the proper help and set plan in motion before applying for a mortgage.

 

Need an agent's help? We've got you covered:
 

Gavin C. Realtor Profile Photo

Agent Name: Gavin C. | View Agent Profile>>

Serving Area: Oakville, Toronto, York

"I treat my clients like family and care for their needs first and foremost in all regards. I am tenacious in my pursuit to do the very best for my clients."
 

Jason O. Realtor Profile Photo

Agent Name: Jason O. | View Agent Profile>>

Serving Area: Cambridge, Guelph, Kitchener-Waterloo

"My past, present, and repeat customers respect my work within the real estate industry and I look forward to meeting you, helping you, and earning that same respect."
 

Kalpana B. Realtor Profile Photo

Agent Name: Kalpana B. | View Agent Profile>>

Serving Area: Brampton, Etobicoke, Milton, Mississauga, Oakville, Toronto

"I'm a professional with a successful track record and have the skills required to navigate you through a smooth buying and selling process. One of my specialties is helping young couples buy their first home."