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| Insured ? | 80% LTV ? The rates in this column apply to mortgage amounts between 65.01% and 80% of the property value. The home must be owner-occupied and have an amortization of 25 years or less. You must have purchased it for less than $1 million. These rates are not available on refinances. Refinances require "Uninsured" rates. | 65% LTV ? The rates in this column apply to mortgage amounts that are 65% of the property value or less. The home must be owner-occupied and have an amortization of 25 years or less. You must have purchased it for less than $1 million. These rates are not available on refinances. Refinances require "Uninsured" rates. | Uninsured ? | Bank Rate ? | ||
|---|---|---|---|---|---|---|
Insured 6.44% | 80% LTV 5.29% | 65% LTV 5.29% | Uninsured 7.35% | 6.59% | ||
Insured 5.54% | 80% LTV 5.59% | 65% LTV 5.59% | Uninsured 5.84% | 6.19% | ||
Insured 4.79% | 80% LTV 4.79% | 65% LTV 4.79% | Uninsured 4.99% | 5.29% | ||
Insured 4.74% | 80% LTV 4.84% | 65% LTV 4.84% | Uninsured 4.89% | 5.19% | ||
Insured 4.44% | 80% LTV 4.64% | 65% LTV 4.44% | Uninsured 4.44% | 4.84% | ||
Insured 4.89% | 80% LTV 5.29% | 65% LTV 5.29% | Uninsured 5.89% | 5.9% | ||
Insured 5.69% | 80% LTV 5.84% | 65% LTV 5.84% | Uninsured 6.09% | 7.25% | ||
Insured 5.75% | 80% LTV 6.15% | 65% LTV 6.05% | Uninsured 6.05% | 8.35% | ||
Insured 5.65% | 80% LTV 5.8% | 65% LTV 5.7% | Uninsured 5.7% | 6.19% | ||
Insured N/A | 80% LTV N/A | 65% LTV N/A | Uninsured N/A | N/A | ||
Insured 5.25% | 80% LTV 5.25% | 65% LTV 5.25% | Uninsured 5.25% | N/A |
Homeownership is a pathway to financial and emotional freedom for many seeking to live the Canadian dream. For people with traditional employment, this means getting a mortgage that’s repaid over several decades.
But for the self-employed (as a growing number of Canadians are), it can be difficult to qualify for a conventional mortgage. That’s why self-employed mortgages were developed. In this guide, we’ll explore what these loans are, who they’re for, and exactly how they work.
A conventional mortgage is simply a long-term loan. A lender (usually a bank) loans money to the prospective homebuyer allowing them to pay for the home outright. That loan is then paid overtime (often over an amortized period of 25 years). To ensure you are qualified for this loan and capable of repaying it, lenders will evaluate your financial situation. The most important metric the lender uses to evaluate your ability to pay back the loan is your income. The more money you make, the bigger the mortgage you can afford.
This is where self-employed people run into problems. Most self-employed people are diligent about deducting as many legitimate business expenses as possible. That includes transportation, office space, equipment, professional services, and so on. This allows small business owners to report a relatively low income, which keeps their income tax obligations small. But a low income, from a lender’s perspective, is a red flag. It means you can’t afford a major loan.
Self-employed mortgages are one solution to acquiring home purchase financing. They allow you to qualify for a mortgage by providing alternative documentation to prove your financial liquidity. This can include tax documents, customer invoices, bank deposit slips, and so on. The financial benchmarks you need to hit may be loose or stringent, depending on the type of self-employed mortgage you acquire. Generally speaking, you’ll need to provide more evidence of your earnings to obtain lower interest-rate mortgages.
To be considered self-employed, you need to run your own business, either alone or with a partner. For example, sole proprietors or small companies, freelancers, commission sales workers, fishers, and farmers are all self-employed. If you find clients and generate sales directly, rather than receiving paychecks from a traditional employer, you are self-employed. While rules vary, many lenders require that you have been self-employed for at least two to three years to qualify for a self-employed mortgage.
Self-employed mortgages are roughly grouped into three categories:
‘A Lender’ self-employed mortgages: These are issued by the “Big Six” major banks of Canada. They tend to have the lowest interest rates (which is good for you, the borrower) and the most stringent financial requirements. These are the most competitive mortgages and many applicants may be denied.
‘B Lender’ self-employed mortgages: These are issued by smaller regional banks and other lenders. They tend to have less strict financial requirements – but they also cost you more overtime, thanks to higher interest rates. B lenders face fewer regulations than the big banks and take more risks in the loans they issue. They may be willing to consider alternative types of documentation that A lenders would not allow.
‘Stated income’ self-employed mortgages: These are entirely unregulated mortgages. They are issued by very small lenders (known as “private lenders”) that are willing to take big risks. The documentation requirements are minimal: you simply need to state your income (hence the name) and the lender will take you at your word. The interest rates on stated income mortgages are extremely high, reflecting their unregulated nature. Private lenders can be corporations, groups, or even individuals who make loans on a one-to-one basis.
The most important thing to understand about qualifying for a self-employed mortgage is that every lender is different. This means financial benchmarks and documentation vary considerably – especially between A lenders, B lenders, and private lenders. That said, there are some rough guidelines you can expect to encounter:
Financial requirements: The lender will consider your income by reviewing line 150 on your income tax returns from the last few years. They will also need to see your Notice of Assessment (NOA) for recent years to confirm you have no tax arrears outstanding. Additionally, your mortgage lender will likely assess your Total Debt Service (TDS), which is a number that compares your total debt (including the mortgage and any other outstanding loans) to your total income. Finally, the lender will consider your credit report, generally looking for scores in the “good” to “excellent” range. (See the table below for more specifics.)
Business requirements: You need to be self-employed and most lenders will want to see that your business has existed for a minimum of two to three years. You will probably need to provide your Articles of Incorporation as well as a business number or GST/HST account number.
Down payment requirement: Conventional mortgages require you to make a down payment, and self-employed mortgages are no different. The down payment is simply a portion of your total home cost which you pay upfront, out of pocket. Different lenders have different requirements, but they generally range from five to 25%. In other words, if your new home costs $300K, you can expect to pay $15K to $75K upfront.
Mortgage insurance requirement: In some cases, you’ll be required to get mortgage insurance (also known as “mortgage default insurance”). This is an insurance policy you pay for in addition to your monthly mortgage premium costs. It protects the lender financially in case you ultimately can’t make your payments and default on the loan. Paying for mortgage insurance may mean you’re allowed to make a lower down payment.
Maximum mortgage size: Lenders cap the total size of your mortgage. This ceiling varies a great deal depending on the lender’s risk tolerance and the specifics of your financial situation. It may be just a few hundred thousand dollars or well over one million.
Self-employed mortgage requirements by lender type
| A Lenders (Major Banks) | B Lenders | Private Lenders | |
|---|---|---|---|
Interest rates | A Lenders (Major Banks) 2-4% | B Lenders 3-10% | Private Lenders 7-18% |
Down Payment | A Lenders (Major Banks) 5-20%, depending on whether you get mortgage insurance | B Lenders 10-20% | Private Lenders Up to 35% |
Credit Score | A Lenders (Major Banks) As low as 620 | B Lenders As low as 500 | Private Lenders No minimum, depending on lender |
Required Documentation | A Lenders (Major Banks) • Notice of Assessment • 2-3 years tax statements • Articles of incorporation • Proof of monthly income • List of current assets & liabilities | B Lenders • Notice of Assessment • 2-3 years tax statement • Articles of incorporation • Nontraditional documentation of income, including invoices, bank deposit slips, and other corporate financial documents | Private Lenders • Notice of Assessment • Document stating your income |
Getting a self-employed mortgage is a major life decision, with both drawbacks and advantages to consider. Let’s review some of these pros and cons:
Cons of getting a self-employed mortgage:
Buying a home is a powerful financial move that can pay off in the long run – but it also requires a huge initial buy-in. For many people, that down payment is a very unattractive (and perhaps impractical) part of the self-employed mortgage experience. If you’re not prepared to have tens of thousands of dollars tied up in a non-liquid investment, homeownership might not be the right financial move for you.
Of course, homeownership also ties you up geographically. And for some small business owners, mobility is very important. If thriving financially means you need to periodically pick up and relocate, a self-employed mortgage may be more trouble than it’s worth. Finally, you should consider whether the rates available to you are advantageous. Some self-employed mortgages (especially stated income mortgages) come with extremely high interest rates. If that’s your situation, you may be better off renting.
Pros of getting a self-employed mortgage:
For most people, a mortgage (whether self-employed or conventional) is an unavoidable step on the path to homeownership. And with homeownership comes incredible financial and emotional benefits. There can also be perks that feed back into your business. If your new home provides a better workspace or more room to store inventory, it may pay for itself in sheer business growth.
A self-employed mortgage can also be a tremendously effective way to invest your money. The Canadian housing market has grown by about 6% annually for the past 15 years. If it continues growing at that pace (which is, of course, not guaranteed), the cost of your mortgage could be hugely outweighed by the windfall you reap upon selling your home. In other words, real estate investment is a powerful way to leverage your capital for a brighter financial future.
There’s no hard and fast rule about how long you need to be self-employed to qualify for a self-employed mortgage. Different lenders have different requirements. You will not qualify for a self-employed mortgage if you just started your own business. Most lenders – especially A Lenders – require you to have at least two years of self-employment history before you qualify.
Not necessarily. Some self-employed mortgages (especially those issued by A lenders) come with very competitive low rates. But as with traditional mortgages, the lowest rates typically go to borrowers with the best financial qualifications. That means high income, low debt, good credit, strong assets, and few liabilities.
A stress test is how lenders double-check your financial qualifications to ensure you’re able to afford your mortgage. To stress-test your mortgage application, a lender assesses whether you could make payments if the interest rates were significantly higher – either at the Bank of Canada official rate or at their proposed interest rates plus 2% (whichever is greater). If you can afford the mortgage at this hypothetical higher rate (called the “qualifying rate”), you pass the stress test.
A stress test is how lenders double-check your financial qualifications to ensure you’re able to afford your mortgage. To stress-test your mortgage application, a lender assesses whether you could make payments if the interest rates were significantly higher – either at the Bank of Canada official rate or at their proposed interest rates plus 2% (whichever is greater). If you can afford the mortgage at this hypothetical higher rate (called the “qualifying rate”), you pass the stress test.
When a lender reviews your self-employed mortgage application, it assesses a number called the loan-to-value ratio (LTV). The LTV is the value of the loan is divided by the value of the home. For example, if you’re requesting a $150K mortgage to buy a $200K home, the LTV is 75%. Mortgage lenders generally consider higher LTVs to be higher-risk loans. In other words, the less you’re covering out of pocket, the less skin you have in the game – and the more exposed the bank is to financial loss.
Certain lenders will cover your self-employed mortgage up to 95% LTV – if you also purchase default insurance. Other lenders cap out at 90%, even with insurance. Without insurance, you’re unlikely to find a self-employed mortgage above 80% LTV. And some private insurers will only go as high as 75% LTV. Of course, anything not paid for by the mortgage (i.e., the remaining 5-25%) will have to be covered in your down payment.
If you apply for a self-employed mortgage, the lender may use non-traditional income verification to ascertain your financial stability. This means considering forms of documentation that would not be considered for a conventional mortgage. For instance, instead of only considering your net income, the lender might review bank deposit slips, invoices from your customers, evidence of your company’s material assets, and a range of other internal corporate documentation that shows the true value of your company.
The A lenders are the “big six” nationwide banks within Canada: National Bank of Canada, Canadian Imperial Bank of Commerce (CIBC), the Bank of Montreal (BMO), the Bank of Nova Scotia (Scotiabank), Toronto Dominion Bank (TD), and Royal Bank of Canada (RBC). These banks are regarded as A lenders because they offer the best rates and must operate according to the most stringent regulations. They are also the most selective of all self-employed mortgage lenders.
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