Thinking about buying a home? For self-employed people like you, the path to home ownership is a little different. You present unique considerations for lenders. Being prepared for them will help you secure a mortgage that best suits you and your business.
Proof of income, plus…
Among the first pieces of information a lender will require is proof of drawn income from your company. This will inform the debt you can afford to take on.
As an entrepreneur, however, what you draw doesn’t tell the whole story because you probably expense a lot through the company to lower your take-home pay for income tax purposes.
For these reasons, your lender will want to know what you can actually afford, because it might be more than you think. They’ll most likely ask for:
- Financial statements for at least the past two years
- A forecast of expected revenue for at least the next two years
- Notice of Assessments for the last two years
- Proof that your HST/GST is paid in full
- Proof of principal ownership of your business
- Credit scores, both personal and business (see more below)
- Your business licence
Other ways of positioning yourself to secure a mortgage include:
Paying down business debt
You and your business are tied at the hip. The more fiscal responsibility you can demonstrate in your business, the more confidence a lender would have in your ability to handle your personal finances. This is important since your mortgage will likely be the largest managed personal debt.
Increasing your business’s credit score
Pay your business bills in a timely manner to avoid being sent to collections. Running into a vendor or supplier with an itchy trigger finger as it relates to getting collections involved could damage your credit score and scare a lender into thinking they might not get their money on time. A good credit score removes the need for questions. You may even set yourself up for lower interest rates with a high credit score.
Making a larger down payment
A good sign of a consistently successful business is the consistent personal success of its founder. Showing a lender you can afford more than the minimum down payment demonstrates consistent income, and enough foresight to save for something like this — all positives in a lender’s eyes.
Debts of an unincorporated business can be repaid by seizing the owner’s personal property, including their homes. An incorporated business is its own legal entity, separate from you and your home. As such, creditors would have no standing to seize your home unless:
- you’ve personally guaranteed a business loan;
- your creditor is CRA;
- your overdue company credit card is linked to your personal card.
If you’re thinking about getting a mortgage, strongly consider incorporating your business if you haven’t already done so. Doing it properly will cost you about $2,000.
Organizing your documents
Presenting your documentation in an organized way shows a lender you’re an informed business owner who cares about finances and understands where the business is at.
It’s not difficult to get a mortgage as an entrepreneur
And, depending on the size of your mortgage, it will probably light a stronger fire under you and kick your professional efforts up a notch. There’s nothing wrong with that. Plus, earn up to $3,500 cash back† with our mortgage offer. Let’s talk about getting you a mortgage, today!