Low rates and excellent options for self-employed individuals seeking mortgage financing.
Being self-employed provides a number of fiscal (tax) advantages. Chief among these advantages is the possibility to legitimately reduce your overall tax obligation using expense deductions. Your corporation (or self-employed entity) pays less tax, and that’s good.
A possible disadvantage of this strategy is that the resultant income declared on your personal T4 is also reduced, and this can have a bearing on your qualification for a personal mortgage.
Questions and Answers related to Self-Employment:
- Is it harder for self-employed persons to qualify for a mortgage?
It may surprise you to learn that the self employed actually have more options available to them. That having been said, qualifications are generally more restrictive. A good broker will optimize your chances for being qualified. - Will a self-employed person pay a higher rate?
You’ll pay the same rate as anyone else, as long as you qualify. - Must the self-employed provide larger downpayments?
The self-employed can put down as little as 5%, if you qualify. In other circumstances, larger downpayments may be required. - Is it true that I must have been self employed for at least 10 years in order to qualify?
No, that is incorrect. You will need at least 2 years worth of tax filings. There are also exceptions to this rule. - Will I need to provide more paperwork?
This is true, but not overwhelming. If your accounting is reasonably up to date, it should pose no problem. The processing of your application is more involved, so expect a bit more paperwork. - Would it be easier to simply issue a T4 to myself, and then describe myself as simple employee?
Hmm. NO! This is mortgage fraud. Your “employer” must be an arms-length entity which you do not control. - If I do not have at least 2 years of earnings history as a self-employed person, what alternatives exist?
You chose self employment because of the higher earnings and lower taxes, and because you can invoke deductions not available to T4 employees.
If you do not yet have 2 years of income history, we can introduce you to so-called “B” lenders who offer more-flexible terms. Such lenders charge a higher rate of interest to reflect the perceived higher risk.
Paying a slightly higher interest rate for a year or two is money very well spent if you are indeed able to significantly reduce your taxable income. Your mortgage broker should however provide you with a plan to eventually qualify for “A” lending, and we are the experts! - Is it true that I must pay myself a lot more in order to qualify for a mortgage, and thus increase my cost of income taxes?
You must indeed to pay yourself enough to qualify for the mortgage, just like the T4 employee.
There are ways to gross up your income for mortgage purposes, but not actually pay yourself that amount and save on taxes. Self employed individuals have a very clear advantage here.
The good news is that I work with lenders that offer excellent mortgage options for self-employed Canadians. These lenders understand that self-employed individuals have tax write-offs creating significant reductions in their declared income. We will help you get the best possible deal … Give us a call today.
