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All You Need to Know About a Self-Employed Mortgage Loan

Planning to buy your own home in Canada? Worried about the finances and mortgage loans?- Don’t worry. There can be many options for buying your new home in Canada. Even if you are self-employed, you can still opt for mortgage loans from lenders to easen up your home buying process. It is definitely not necessary to stick to a 9-5 office working routine to own a home in Canada. More than 20% of Canadians are self-employed and can easily apply for self-employed mortgage loans if they plan to buy their own home. Self-employed mortgage loan can offer both benefits and risks for Canadians. You could face difficulties in presenting your income proof. You might also get some unique conditions from different lenders. So, it is very important to have a complete knowledge about the self-employed mortgage loan before you apply for it. Want to update your knowledge regarding this mortgage loan?- Read below to know about its types, insurance rates, pros and cons, qualifications and the documents required for it.

What does self-employed mortgage loan mean? If you are self-employed or a business owner in Canada, you would have to bear the profits and losses of the business. Moreover, you might not be getting regular pay-cheques on a biweekly basis. Self-employed mortgage loans are designed for the borrowers who are self-employed, depend on their business income only, and do not have any employment income to depend on.

The traditional mortgage loan appliers give their proof of income in terms of the last tax return. But for self-employed mortgage loan, the tax deductions make this amount very less. This self-employed mortgage loan takes this factor into account and provides the best of favors for reporting the net income.

Pros of opting for self-employed mortgage-

As compared to traditional mortgage loans, self-employed mortgage loans can be highly beneficial for buying a home in Canada. You just need to be aware of the rules, applying process and the documents required. Be ready with the required documentation and get benefitted with the following pros of self-employed mortgage-

• Higher mortgage loan amount- For stated income mortgages, you can easily get approvals for a higher mortgage amount as compared to that in traditional mortgage loans. So, stay aware and get benefitted with this benefit of getting a larger mortgage sum when being self-employed in Canada.

• A benefit of competitive rates- Self-employed or business owners of Canada can easily own a home with the help of self-employed mortgage loans. You just need to be ready with the down payment and have a secure insurance or stated income to apply for this mortgage loan and that too at better competitive rates.

• Very efficient approval process- The approval process for a traditional mortgage loan loan is very long and it can take almost a few weeks for you to get the approval. However, the self employed mortgage loan has a very efficient approval process. It just takes a few hours for you to get its approval.

• Great tax deductions- With self-employed mortgage loan for stated income, you can save a lot of your hard-earned money from taxes. You can also qualify for better rates and that too within minimum period of time if you apply for self employed mortgage loan to save your taxes.

Cons of opting for self-employed mortgage-

Applying for a mortgage loan is a big financial decision for your life. So, take this decision very wisely after knowing the pros and cons both. Just like any other loan, this self-employed mortgage loan also has some risks or cons, they are-

• Banks may not give you the approval- Although the banks which are termed as ‘A’ lenders in Canada might consider the applications of self employed mortgage loans but it is not necessary that they will give approvals to each and every application. So, it is quite possible that you would have to consider a private lender or a broker for your self-employed mortgage loan.

• Higher rates than traditional mortgage loans- Self-employed or business owners in Canada do not have a secured income source. This is why the lenders consider to be at a higher risk with them as compared to other traditional mortgage loan applicants. Because of this higher risk they impose higher rates in self-employed mortgage loans. Moreover, if you have some other pending loans or a bad credit score, your rates would even be higher.



How many types of lenders offer self-employed mortgage?

Various options available for self-employed mortgage borrowers are-

• ‘A’ lenders- These lenders are generally very strict in terms of their qualifying conditions, document requirements, and approval processes. They will offer different mortgage rates at different conditions. They have their fixed minimum down payment and maximum loan requirements.

• ‘B’ lenders- ‘B’ lenders are comparatively less strict in their terms and conditions for giving self-employed mortgage loans. Because of being less strict than ‘A’ lenders in terms of loan requirements, these ‘B’ lenders generally have higher rates.

• Private lenders- Private lenders should be the last considerable option for self-employed mortgage loans as their interest rates are the highest, usually from 7%- 18%. They also impose additional loan set-up charges and broker fees which can add up to 1%- 3%. Their loan requirements and qualifying conditions are very less as compared to both ‘A’ and ‘B’ lenders which accounts for their higher interest rates.



Types of mortgage loans for self-employed in Canada-

Self-employed or business owners in Canada can have numerous mortgage options for buying a new home. You just need to know the qualifying conditions, and the entire working process of all the available options before applying for approval. All the options for self-employed mortgage loans are-

• Stated income mortgages- The stated income mortgage requires a very large down payment, usually 20% or more. You don’t need to give your income verification if you are applying for a stated income mortgage under self-employed scheme. Your lender will ask you to state your income but won’t perform any income verification. You might not get this stated income mortgage from some ‘A’ lenders, but many other lenders will comfortably give you the approval for this mortgage.

• Insured stated income mortgages- If you cannot arrange for the large down payment required in stated income mortgage, you would have to opt for insured stated income mortgage. This type of mortgage loan requires a lesser down payment, usually 10% but you would have to pay insurance premiums. Moreover, you would need a good credit score for opting this mortgage loan. You might need to look out for a private lender or a broker for this case as CMHC doesn’t provide this type of mortgage loan.

• Sagen- Business for self- This type of mortgage loan doesn’t require you to verify your income but you would have to verify the operation and history of your business. You should have been running your business for at least the past two years. This mortgage loan is available only for owner-occupied properties but not for rental properties. Moreover, if you are a self employed commission-based salesperson, you won’t be eligible to apply for this scheme.



How to qualify for a self-employed mortgage loan?

Looking at the benefits of self-employed mortgage loan, you might wish to apply for it. But before finalizing your dream home, you need to look at the qualifying conditions for this mortgage loan. The criteria to get the approval and the qualifying conditions for the same are-

• Verifying your income- All the types of mortgage loans require income verification in some or the other way. Directly or indirectly, you would need to state the security of your income. The three different kinds of income verifications are-

a) Traditional income verification- If you are getting an employment income, then that income would be verified with the help of tax return documents. This is traditional income verification. The mortgage rates for traditional income verification would be the least as the risk involved here is the least.

b) Non-traditional income verification- The non-traditional income verification is done with the help of the financial statements of your business and the bank statements. Non-traditional income verification mode will have slightly higher mortgage rates than the traditional one.

c) Stated income- You can opt for this stated income mode when you are not able to verify your income. The mortgage rates and the down payment requirements for stated income mode are the highest as compared to other options.



• Net amount of mortgage loan- Different lenders will have different conditions for approving the net mortgage amount. You just need to reach out to them well in advance to choose the best deal out of all available options.

• Minimum possible down payment- The stated income schemes will have a much higher down payment requirement, may be up to 20%. However, with ‘A’ lenders, the down payment requirement can be as least as just 10%. You just need to stay updated well in advance and be ready with the down payment for getting the approval on time.

• Self-employed insurance from CMHC- CMHC asks for income verification from self-employed applicants too. If you can verify your income, you would be treated in the same way as other borrowers. You just need to be running the business for at least past two years and provide your credit reports, Notice of Assessment, GST returns, and other financial statements, etc. for getting this CMHC self-employed mortgage insurance.

Documents required for self-employed mortgage loan-

If you are ready with the required down payment and have made up your mind for the self-employed mortgage loan, be ready with the following required documents-

• Your business registration number,

• Account number of GST/HST,

• If incorporated, articles of incorporation,

• Notice of Assessment from last 2-3 years,

• Your financial statements,

• Your bank statements,

• Business license.

It is definitely not necessary that all the lenders or brokers would need the same type of documents. You might need to present some other documents as well. So, ask about your queries and the required documents from your lender well in advance.

Insurance rates for self-employed mortgage loan- With proof of income- If you can provide a secured income proof or a secured income insurance proof, you have the option of paying 5%-9.99% mortgage or insurance rates.

Insurance rates for self-employed mortgage loan- Without proof of income- If you cannot provide a secured proof of your income, you won’t have the option of paying 5%-9% mortgage rate. The rates would be higher i.e. starting from 10% because of the higher risks involved.

Some helpful tips to qualify for a self-employed mortgage- Planning to apply for self-employed mortgage loan?- Worried about getting the approval?- Follow the below-listed tips to qualify for your self-employed mortgage loan-

• Consult an experienced and trustworthy broker

• Think at least twice before applying

• Risk and interest are directly proportional, so try for lesser risks.

Trustworthy brokers or lenders would ensure to keep you informed and updated about the entire loan approval process. Try to arrange for a higher down payment, and a higher credit score so as to lessen the risks and thus lessen the mortgage interest rates.

FAQs-

1) If I have a bad credit score, can I still be able to get approval for a self-employed mortgage loan? You can get numerous lenders for applying a self-employed mortgage loan. So, even if you have a bad credit score and pending loans too, then also you can get approvals for self-employed mortgage loans if you know every important detail about it.

2) Can I also get a second mortgage when I am self-employed in Canada? Yes, you can easily get a second mortgage loan while being self-employed with the help of different stated income programs from various lenders.