Qualifying for a mortgage, including self-employed
Get the mortgage that works for you
To understand how to qualify for a mortgage, it’s important to understand how a lender will evaluate your financial situation. Here are the two most important factors:
Your Gross Debt Service Ratio, which compares your monthly housing costs against your monthly gross income. Generally, your monthly housing costs should be less than 32% of your monthly gross income.
Your Total Debt Service Ratio, which takes a look at all your debt including housing, credit cards and loans. Generally, your total monthly debt should be no more than 40% of your monthly gross income.
Applying for the mortgage
To apply for a mortgage, you must meet these basic requirements:
19 years of age or older.
Resident of British Columbia.
Have not declared bankruptcy in the last 7 years.
When you’re ready to go, give us a call to set up an appointment with a mortgage specialist. You will need to bring a number of documents with you.
Special requirements for self-employed individuals
As a self-employed person, it’s in your best interest to minimize your reported income so you pay less tax. Unfortunately this can work against you when it comes time to apply for a mortgage. The lower your income, the less you typically qualify for when applying for financing.
At BlueShore, we understand you incur extra costs to earn income, and we will typically add an extra 15% to your reported income when calculating your mortgage eligibility.
Provide income validation
Many self-employed applicants require high-ratio mortgage insurance provided by The Canada Mortgage and Housing Corporation (CMHC). The CMHC requires income validation which must include the previous two years’:
Notice of Assessment
audited financial statements, or
unaudited financial statements prepared by an independent third party
BlueShore will also accept a Statement of Business Activities.
Ways to support your mortgage application
Keep in mind the following tips to improve the chances of your application being successful
Improve your credit score
Reduce your debt-to-income ratio by paying off some of your debt in advance of your application
Have cash reserves on hand to show you can cover mortgage payments during periods of income fluctuation