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According to research by LIMC, up to 16% of the Canadian workforce is self-employed, within which 73% of entrepreneurs work independently. For self-employed Canadians looking for ways to turn their home-buying dreams into reality, this article by Dominion Lending Centres provides the steps for navigating the process of mortgage and homeownership.

Plan for Homeownership Costs

Buying a house is a long-term responsibility that will serve as a recurring cost for the foreseeable future. As reported by the Government of Canada, here are a few criteria’s borrowers should be aware of:

• TDS Ratio: The total debt load is calculated by dividing your gross monthly income by the sum of monthly housing costs and other debt payments. A ratio of 44% or less is considered ideal.
• GDS Ratio: Calculate your gross debt service ratio by adding all monthly housing costs and dividing it by your gross monthly income. Work to keep your GDS ratio at 39% or lower.

Gather Required Documents

Before connecting with a lender take the time to obtain the following documents:

• A copy of Articles of Incorporation (if you are incorporated).
• Proof of you being the principal owner of the business, as well as proper documentation of your income from your business.
• Notices of Assessment for at least the past 2 years. If you are newly self-employed, you may be eligible for an exemption.
• Your personal and business credit reports. A score above 650 will help to make a good impression on the lender.
• Past and current financial statements, in addition to any contracts showing expected future income.
• Proof of payment for HST/GST.

Applying for a Mortgage

Once you have gathered the required documents, approach the lender of your choice and submit a mortgage application. Expect to face one of these two situations:

• If you can provide proof of income and put forth a 20% down payment, you’ll avoid having to pay an insurance premium on your mortgage.
• If the lender isn’t satisfied with your proof of income, you’ll be required to pay at least a 10% down payment and be charged a premium between 6–4%.

Additionally, the income you declare on line 150 of your T1 tax return for the past 2-3 years will be used to calculate the eligible mortgage amount. Hence, be mindful of how much income you repay yourself from your business revenue.

For self-employed individuals, proving their financial stability to lenders is key for being accepted for a mortgage.

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