For self-employed individuals, getting a mortgage may seem more challenging, but it’s entirely possible with the right preparation. Lenders typically require more documentation to verify your income, but if you follow these steps, you can improve your chances of securing a mortgage.

1. Get Your Financial Documents in Order

Self-employed borrowers need to provide a detailed picture of their income. Be ready to submit the following:

• Two years of personal and business tax returns
• Notice of Assessment (NOA) from the CRA
• Profit and Loss Statements or other financial statements that reflect the profitability of your business
• Lenders use this documentation to verify the consistency of your income over time. Make sure everything is accurate and up to date.

2. Work on Your Credit Score

Lenders place a strong emphasis on your credit score. The higher your score, the better your chances of approval and securing favorable interest rates. To improve or maintain your credit score:

• Make payments on time
• Keep your credit card balances low
• Avoid taking on new debt before applying for a mortgage
• A solid credit history shows lenders that you’re a reliable borrower.

3. Reduce Your Debt-to-Income Ratio

Lenders assess your ability to manage new mortgage payments by looking at your existing debt. A lower debt-to-income (DTI) ratio demonstrates that you aren’t overextended financially. To lower your DTI:

• Pay off outstanding debts, such as credit cards or personal loans
• Avoid taking on new debt, especially in the months leading up to your mortgage application
• The lower your DTI, the more likely a lender is to approve your mortgage application.

4. Save for a Larger Down Payment

Self-employed borrowers may need a larger down payment than traditional employees. While you can technically qualify for a mortgage with as little as 5% down, a larger down payment lowers the lender’s risk. Aim for 20% or more if possible. This not only increases your chances of approval but can also save you money by avoiding mortgage insurance premiums.

5. Find the Right Lender

Not all lenders have the same requirements for self-employed individuals. Some may specialize in working with borrowers like you, offering more flexible income verification options. Consider working with a mortgage broker who can help you find the right lender for your situation.

6. Get Pre-Approved

Before you start house hunting, it’s a good idea to get pre-approved for a mortgage. Pre-approval provides you with a clear understanding of how much you can borrow and shows sellers that you’re serious and financially prepared. This can give you an edge in competitive housing markets.

7. Consult with a Professional

Lastly, it’s helpful to work with an accountant or financial advisor who understands the needs of self-employed individuals. They can help you organize your financial documents, make sure your tax returns reflect accurate income, and offer advice on how to improve your financial standing before applying for a mortgage.

Securing a mortgage as a self-employed individual may require extra effort, but with careful planning and preparation, it’s well within reach. Stay organized, work on your credit, and seek advice from professionals who can guide you through the process. If you need help with your financial documents or tax planning, FR Accounting and Tax Services is here to assist you every step of the way.