Self-employment or BFS is more and more common these days when your applying for a mortgage it’s important that we know your history and prior experience. This especially applies for those who have maybe moved from one profession to another to become self-employed. Lenders want to know the why and how of your back ground.
For self-employed mortgage clients we need to know how we are going to show your income, if your notice of assessments (NOA) show little or no income what is it that we have to prove your income. Some lenders will take the business cash flow as a means of proving this amount, some will simply you state your income by means of a declaration. This of course needs to be reasonable as they wouldn’t expect a finishing carpenter to be claiming 500000 dollars.
Do you have tax arrears?
Self-employed mortgage clients constantly go back and forth with Revenue Canada but the importance of being up to date when you are trying to purchase a home is that CRA has the right to go ahead of the bank and take your house if the arrears are extremely serious. Lenders on all levels ask this of clients.
Let’s talk about your self-employed business and the type of structure that it has, are you a corporation then we will need to see the incorporation documents. Are you a partnership then we would need to know what percentage you own of the corporation? Are you a sole proprietor and just pay taxes as an individual. Can you supply them with at least two years of business statements to show your companies well being? All of these are basic requirements for self-employed clients.
Loan to Value
There are many ways to show income and the more provable the more money you can get. If we are using NOA income then we can probably go to 90% loan to value (ltv) of the property. If we are showing 12 months bank statements to show cash flow income then we are probably going to be able to get 80% ltv and if we are stating your income then most likely we will be only able to get 75% ltv. Lots of factors to consider and lots of different variables for the self-employed clients.
As you can see a lot of things for the self-employed to consider and gather before looking for a property. A skilled mortgage broker can help you navigate the mortgage waters when the time comes to purchase a property.