On the other hand, proving your income becomes that much more difficult – especially when you’re talking to the banks. Salaried employees applying for a mortgage can prove their income through T4 slips and a few recent paystubs. For the self-employed, it isn’t that simple.
· Self-employed individuals are either soul-proprietors or have ownership interest in some sort of business entity. Here is where things can get tricky: rental income Losses – On almost every mortgage loan application this can come back to bite the borrower.
In general, however, mortgage lenders typically consider self-employed borrowers to be higher risk. For that reason, criteria for credit and assets may also be more stringent. The lender may require the self-employed borrower to have a stronger financial profile overall, to offset the additional risk.
It’s a common misperception that self-employed people can’t get a mortgage. The truth is that they can qualify for the same loan products as traditionally employed applicants. The only difference lies in the process and criteria of qualification, since they can’t produce all the same documents as can employees.
Mortgage Options. Due to the subprime mortgage crisis, it may become more difficult for the self-employed to obtain mortgages as banks shy away from riskier investments to protect their financial interests and their reputations. However, some lenders may still be willing to give you one of the following types of loans.
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When a borrower is relying upon self-employed income to qualify for a mortgage and the requirements that permit the lender to waive business tax returns are not met, the lender must prepare a written evaluation of its analysis of the borrower’s business income.
Proving business income. For self-employed borrowers with a history of paying themselves, mortgage guidelines as of June 2016 state that the borrower no longer needs to prove access to the business income. The applicant, however, may still need to show that the business earns enough to support income withdrawals.
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That’s a challenge for lenders, because on one hand, self-employed applicants need to show enough income to qualify for a mortgage. On the other hand, they want to lower their taxable income by taking.