Being a self-employed individual means you have complete control over your business and its growth. You call the shots when to purchase new equipment, move to a new location, or venture into additional business opportunities.
However, being an entrepreneur also has its challenges, especially when it comes to a mortgage. For instance, your application and requirements are somewhat different from ‘traditional borrowers’ with 9-5 jobs. Some may even find it difficult to get approval as they struggle to provide income proof even if they’ve established themselves in the business.
If you’re planning to get a self-employed mortgage to expand your business or refinance your home, this guide will give you a head start on the application process. Here are some things you’ll need to consider for a self-employed mortgage application:
Table of Contents
Look For A Self-Employed Mortgage Broker
When it comes to your business, you’re probably used to handling matters on your own. However, it won’t hurt to ask for advice regarding financial issues like mortgage financing.
Look for a broker who specializes in self-employed mortgage Toronto or in your local area to give you insight on the entire application. Aside from this, they can also help you prepare the needed requirements, go over available options, and match you with a suitable lender. Also, they can keep the mortgage application a smooth and easy process for both first-time lenders and repeat borrowers.
Ensure Good Credit Standing
Just like other types of loans, you also need a good credit score to move forward with your application. Your personal credit history determines your ability to make prompt payments, while your debt-to-income ratio proves that you have enough to finish the loan. Lenders may also require your business credit score as a measure of trustworthiness.
Provide Necessary Documents
You also need to show proof of your business and compliance with applicable tax laws. Depending on your business setup, you’ll need one or more of the following documents:
- Certificate of ownership to show you own at least 25% of the business.
- Business license to detail location and industry
- Personal tax Notices of Assessment for the past 2-3 years
- A business financial statement detailing your company’s revenues, expenses, and losses.
- Supporting documents such as fully paid harmonized sales tax (HST) or goods and services tax (GT)
Your accountant can prepare the documents mentioned above and even issue a certification of your business’s existence and good standing.
Add Proof of Income
Aside from pertinent business documents, it would be best to show the lender that your business can pay the self-employed mortgage. They’ll require bank statements of your personal and business accounts. If you have real estate properties, you’ll need to list their locations as well.
To increase your approval rating, you can also include income earned from side gigs. Showing substantial proof that you can repay the loan will also decrease your down payment and interest rates.
Make Calculations
Once you complete all the requirements, you can calculate how much mortgage you need to buy a new home or commercial property. If the purpose of your loan is to refinance your home, make sure to factor in the fair market value along with your projected income. This way, you’ll know how much you need and to pay once it gets approved.
If you’re worried about wrong estimates, you can ask a self-employed mortgage broker for help. They can supply you with the needed numbers for your income source and potential mortgage payments.
Consider Several Proposals
After the calculations and paperwork is done, you’ll receive a proposal from one or several lenders. Take time to evaluate them to see if paying either fixed or variable is the best for your application.
Prepare Down Payment
After scrutinizing your personal and business records, lenders will either approve or reject your application. You can get approved for a self-employed mortgage loan if you submit the required documents and convince them that you can make payments.
Expect to put some money down for your intended property. This typically ranges from 5% to 20% of the total property cost. The rule of thumb is that the higher the down payment, the lesser the interest, so be prepared to shell out as this can help make repayments easier in the future.
Conclusion
If you know a few things about the application process, getting a self-employed mortgage loan can be easy. To take away the stress and frustration, all you need are several personal and business documents to show proof of your self-employed status, proof of income, and an experienced mortgage broker to facilitate it.