Self-Employed Mortgage Options for those with Bad Credit
For years, self-employed Canadians could count on getting a mortgage based on the strength of their credit score and on their word that they were making enough to repay the loan.
All that changed in 2008, though, when the Federal Government tightened lending rules in an effort to avoid the same kind of housing crisis that happened in the United States. Canada’s big banks now place a lot more importance on credit score and income than they used to before approving a mortgage or loan.
This has made it a lot more difficult for the country’s 2.75 million self-employed workers.1 For starters, if you’re self-employed and have bad credit , the banks believe there is a greater chance that you will default on the mortgage.
Banks might even want a down payment as high as 30% of the total purchase price. This is much higher than the 20% minimum down payment required by those who are not self-employed and have good credit.
If you are turned down for a mortgage by the banks, you can still qualify for a mortgage from a non-traditional lender. You’ll just need to be prepared to show them why they should give you a mortgage.
An alternate lender may want to see your current financial statements and tax documents. It may also want to see bank statements to show a regular income is going into your bank account. You’re also going to need to explain your business. Your credit score may be bruised, but lenders will still help you secure a mortgage if your business is profitable and income is steady.
You can also increase your chances of getting a mortgage with bad credit by reducing your debt and having a larger down payment. This shows lenders you know how to pay off your debt and save money, both of which also have the added benefit of helping you improve your credit score. After you make a few on-time mortgage payments, your credit score will improve even more.
Mortgages for Self-Employed with No Proof of Income but Good Credit
If you’re self-employed and have good credit, it can be difficult to get a mortgage if you can’t verify steady income. Gone are the days of needing a credit score of 680 or higher to get a mortgage; even if you were self-employed.
Not having steady income, which is common for those who are self-employed, is a red flag for Canada’s big, traditional lenders. Without proof of income, they’ll say there’s no guarantee you’ll be able to repay your mortgage.
That isn’t the case with all mortgage lenders though. Some lenders will not even ask for traditional proof of income like tax returns or a Canada Revenue Agency Notice of Assessment. Instead, they will rely on your bank statements. In some cases, lenders will provide financing of up to 95% of the value of the property with little or no proof of income.
There are a lot of alternatives for self-employed Canadians with good credit but little or no income verification. For example, if you have excellent credit and prove you have been self-employed for two years, you may be able to purchase a house with as little as five percent down.
If you have a good credit history and have been self-employed for less than two years , you may be able to secure a mortgage with just 10% down. If your credit history is fair and you have been self-employed for at least three years, you may be able to get a mortgage from an alternate lender for 75% of the purchase price.
Your mortgage professional should be able to help you determine what kind of mortgage you qualify for.
Getting a Mortgage when Your Income Is Unreliable
Even with tighter mortgage rules for those who are self-employed, you can still qualify for a mortgage if your income is unreliable or fluctuates. It’s just going to take a little more effort.
If your income doesn’t meet the stringent requirements of Canada’s big banks, there are other lenders willing to help those with unreliable incomes secure a mortgage. In fact, some lenders look at different ways to increase the mortgage eligibility of those who are self-employed.
That’s because, in part, those who are self-employed try to minimize their taxable income by maximizing their business expenses and deductions. So, on paper, it may not look like you made a lot of money.
If you’re self-employed and your income is unreliable or fluctuates , some lenders will actually add 15% to your reported income and boost the percentage if you can show business deductions totaled more than 15%.
Because some lenders don’t have to follow the same rules as the big banks, they will extend a mortgage of up to 80%, 90%, or 95% of the purchase value to someone who is self-employed without the need of default insurance.
Canadalend.com, Helping the Self-Employed Secure Mortgages
Canada’s traditional banking industry makes it difficult for those who are self-employed and have bad credit , have no proof of income, or have an unstable income qualify for a mortgage. If you’re self-employed and are looking to secure a mortgage but have been turned down by the big banks, there is still hope.
With careful planning and consultation from the independent, licensed agents at Canadalend.com , you can overcome these hurdles and secure a mortgage.
Canadalend.com is the country’s leading low-cost private mortgage solution provider . We help those who are self-employed and have bad credit, low income, and unreliable income secure a mortgage.
Just because the banks don’t think you’re an ideal borrower, there are a lot of other lenders who think you are. Because Canadalend.com agents are independent, they are able to draw from hundreds of banks and lenders to help you find the mortgage best suited to your financial and lifestyle needs.
Many of these lenders specialize in providing mortgages to clients that are self-employed, have bad credit, unreliable income, and have even declared bankruptcy.
If you’re self-employed and are interested in finding out what kind of mortgage you qualify for contact us today or apply online and a Canadalend.com mortgage specialist will set up an appointment at your earliest convenience.
1. “Self-Employment, Historical Summary,” Statistics Canada, last accessed October 5, 2016; http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/labor64-eng.htm.