Keep your taxes up to date
In order to qualify for a mortgage, home buyers must submit a credit history and declare all outstanding debts. They must also provide documentation of their income.
With salaried individuals, banks generally ask to see a letter of employment and a pay stub. With self-employed people, banks typically require two years of personal and business tax statements, depending on whether the individual is incorporated or a proprietor.
While banks look at the gross income of a salaried person, both gross and net incomes are key determinant in transactions with self-employed individuals. Because small-business owners must collect their own taxes, some put off paying them for several years, report loss on business, or simply expensed all items possible to reduce the taxable income.
Make the income case justifiable
The aforementioned circumstances don’t take into account people who’ve been self-employed for less than two years. There are a variety of financial products in place for people in that boat.
“The bank may look at it and say, ‘Well, Mr. Smith was an engineer for three years at Shell Canada. For the last two years, he’s been contract. Let’s look at the last two years’ tax returns. He’s a professional. He made $60,000 as an employee and he made $60,000 as self-employed. Let’s proceed.”
Some banks offer a product called a “no-income qualifier.” The lender will overlook your recent income (or lack thereof) if you can show that you have assets — such as investments, perhaps — and that you have sufficient funds to make a down payment.
Filed under: FAQ, Self-Employed Mortgage (BFS)
