Author:Key Considerations for Self-Employed First-Time Homebuyers in Canada:
Buying your first home as a self-employed person in Canada can be tricky, but it’s possible with the right collaboration with a mortgage planning expert. Here are three important things to know.
- First, it’s important to understand that getting a mortgage can be harder for self-employed people. Lenders need to see at least two years of tax returns and other financial papers to check if your income is stable. To make your application stronger, try to reduce your debt, save more money, and keep your tax filings accurate and up-to-date. Lenders want to see that your income is steady and reliable.
- Next, having a good financial profile is key. Keep your credit score high by paying bills on time and using credit wisely. Manage your business and personal finances separately and keep good records. This makes it easier to show lenders a clear picture of your financial health. You can also use your assets, like investments or other properties, to help support your mortgage application.
- Finally, a mortgage broker can be very helpful. They know which lenders work best with self-employed people and can help you access special mortgage deals. They also guide you through the paperwork and make sure your application is as strong as possible.
By focusing on these areas, self-employed people can improve their chances of getting a mortgage. Many self-employed individuals get mortgages every year, and with the right preparation and help, you can too.
Regarding self employed people, will lenders accept tax documentation from their previous country of residence? Do they need to wait until they have 2 years of Canadian tax returns to apply for a mortgage?
ANSWER:
Canadian lenders typically prefer Canadian tax returns for self-employed mortgage applicants. However, some lenders may consider tax documentation from an applicant’s previous country of residence, especially for newcomers to Canada.
Three examples of countries whose tax documents Canadian lenders might consider are:
- United States
- United Kingdom
- Australia
These countries have similar financial systems to Canada, making their tax documents more familiar to Canadian lenders. Generally, self-employed individuals need two years of Canadian tax returns for a smoother mortgage application process. This allows lenders to accurately assess the applicant’s income in the Canadian context. There are alternative lending options that do not require two years of Canadian tax returns, which are viable options a mortgage planner can utilize.
Regarding the importance of a good financial profile, do you have some tips that newcomers can use to build up credit quickly and efficiently?
- Secure your start: Start with a secured credit card. You’ll need a deposit, but it’s easier to get. Use it for small things and pay it off every month.
- Climb the credit ladder: After 6–12 months of good use, you might get an unsecured card. This shows you’re a trustworthy borrower.
- Master the 30% rule: Keep what you owe under 30% of your credit limit. This shows good credit management and helps your score.
- Quality over quantity: Don’t apply for lots of credit cards at once. Each application can lower your score. Instead, spread out applications and use your current credit wisely.
Is there a minimum balance they need to maintain in their account? What about a minimum percentage of liquidity? Do you have any other recommendations on how to maintain a good financial profile?
Secure your closing costs: Lenders usually want you to have 1–1.5% of the home’s price in cash, not including your down payment. This helps you cover closing costs like legal fees and land transfer taxes. Having this extra money shows lenders you’re ready for homeownership beyond just the down payment.
Finally, regarding the mortgage broker, can you give me a few things that a good broker such as yourself will do for your clients to assist them in the process of obtaining a mortgage?
- Assess financial situation: review income, debts, and credit to determine mortgage eligibility.
- Advocate for clients: negotiate with lenders on behalf of my clients, especially those with non-traditional income profiles (e.g., self-employed, commission, bonus)
- Problem-solving: Customize creative solutions for challenging situations, such as variable annual income
What should a person look for when choosing a mortgage broker?
- Has a track record of successful approvals for diverse mortgage scenarios
- Provides clear, honest advice
- Availability and responsiveness
- Range of lender partnerships
How do you know if one is good vs. not that great?
- Tailored solutions and education: A great mortgage planner learns about your financial situation and goals to give you the best mortgage options. They explain each choice in simple words and don’t just push the easiest or lowest-rated option. Instead, they find the best fit for you. A bad broker might give the same option to everyone or rush you without explaining.
- Proactive communication and problem-solving: A great mortgage planner keeps you informed, spots problems early, and fixes them. They answer your questions quickly and stay in touch even after your mortgage is done. If problems come up, they use their skills to find solutions. A bad broker might be slow to respond, leave you confused, or give up easily.
