Self Employed Mortgage

Freedom Capital provides Self Employed Mortgage in several cities and provinces in Canada. The list include:

1. Self Employed Mortgage in Alberta
2. Self Employed Mortgage in British Columbia
3. Self Employed Mortgage in Ontario
4. Self Employed Mortgage in Surrey
5. Self Employed Mortgage in Vancouver

Stated income mortgages, also known as “no-doc” or “low-doc” mortgages, allow borrowers to state their income on their loan applications without providing extensive documentation to verify their income.

The main reason for using stated income for mortgages was to simplify the loan application process and make it more accessible to self-employed individuals and those with non-traditional sources of income. In some cases, individuals with high income but irregular or complex income streams found it difficult to document their earnings through traditional means, such as pay stubs or T1 or T1A forms. Stated income loans provided an alternative for such borrowers by allowing them to state their income without extensive documentation.

When it comes to self-declared income, there are specific steps and information required to complete the declaration process. To ensure accuracy and compliance, individuals must fill out a declaration form or draft a letter, which may also require a witness during the signing process. The following key details will be requested as part of the declaration:

• Gross Earnings or Net Income of the Previous Year:

To begin the self-declared income declaration, individuals will need to provide the gross earnings or net income earned during the previous year. This figure serves as a crucial starting point for assessing one’s financial standing and determining their income tax liability.

• Name and Address of the Business:

In addition to income details, the declaration form or letter will ask for the name and address of the business associated with the self-declared income. This information helps establish the source of the income and enables proper identification of the business entity.

• Nature of Business:

Elaborating on the nature of the business is essential to provide a comprehensive understanding of the individual’s professional activities. Whether it’s consulting services, freelance work, or entrepreneurial ventures, clearly stating the nature of the business ensures transparency and accuracy in the declaration process.

• Years in Business:

Indicating the number of years the individual has been involved in their business endeavors is a vital component of the self-declared income declaration. This detail showcases the level of experience and stability in the industry and adds credibility to the income reported.

• Number of Employees:

If the self-declared income involves a business that employs other individuals, the declaration form may require the disclosure of the number of employees within the organization. This information offers insights into the size and scale of the business operations and helps evaluate the individual’s financial capacity.

• Percentage of Business Ownership:

For partnerships or businesses with multiple owners, specifying the percentage of business ownership is necessary. This detail clarifies the extent of the individual’s stake in the enterprise and provides a comprehensive view of their involvement and financial interest.

• Retained Earnings for Corporations:

In the case of corporations, it is crucial to include the retained earnings figure in the self-declared income declaration. Retained earnings represent the portion of the company’s profits that are reinvested or retained for future growth and expansion. Reporting these earnings accurately ensures compliance with financial regulations and taxation requirements

Mortgage default insurance plays a significant role in determining the loan-to-value ratio (LTV) that lenders are willing to offer borrowers. With mortgage default insurance, borrowers have the opportunity to secure financing for up to 95% of the home’s value, providing a higher level of leverage. On the other hand, without insurance, borrowers are typically limited to borrowing up to 80% of the home’s value, requiring a larger down payment.

The same principles of mortgage default insurance extend to self-employed individuals seeking mortgage financing. The Canada Mortgage and Housing Corporation (CMHC), one of the primary providers of mortgage default insurance in Canada, imposes specific debt service ratio limits for self-employed mortgages. These limits ensure that borrowers can afford their mortgage payments while managing their overall debt obligations.

While it is true that lenders generally prefer to see a track record of at least two years of self-employment income, being recently self-employed doesn’t necessarily disqualify you from obtaining a mortgage. However, it’s important to note that securing a mortgage as a recently self-employed borrower can be more challenging, requiring additional documentation to demonstrate your financial stability and ability to repay the loan.

Lenders consider a variety of factors when assessing the eligibility of recently self-employed borrowers for a mortgage. These factors may include the industry you operate in, the stability of your income, and the prospects for continued success in your self-employment venture. Although there is no strict rule regarding the minimum duration of self-employment, lenders typically prefer to see a reasonable track record to gauge the sustainability of your income.

If you’re self-employed and seeking a mortgage without having to provide proof of income, there are options available to you. Two mortgage default insurers in Canada, Sagen and Canada Guaranty, offer the opportunity to obtain a self-employed mortgage through their stated income mortgage programs. These programs allow borrowers to state their income without the need for extensive documentation.

To qualify for a self-employed mortgage without proof of income, you would typically need to make a down payment of at least 10% and work with a lender that partners with either Sagen or Canada Guaranty. These insurers provide the necessary coverage for lenders who are willing to offer mortgages based on stated income, providing an alternative option for self-employed individuals who may have difficulty providing traditional proof of income documents.

While it is commonly believed that self-employed mortgage rates are typically higher than those for traditional mortgages, it is important to note that there is no fixed rule dictating that self-employed rates must be higher. Like any mortgage, the rates for self-employed borrowers are influenced by various factors, including the borrower’s financial situation, creditworthiness, and the specific terms of the mortgage.

In general, the better your financial situation as a self-employed individual, the higher the likelihood of securing a lower mortgage rate. Lenders consider factors such as your credit score, income stability, debt-to-income ratio, and the overall strength of your business when determining the mortgage rate. If you can demonstrate a solid financial profile and a history of consistent income, lenders may offer you more favorable rates.