If you are self-employed and would like to purchase a new property or refinance your existing property, you may have to face certain challenges that traditional employees do not have to face. Often as a self-employed individual, we can feel there are many hoops to jump and navigate through when it comes to being approved for a mortgage. There are usually two paths in which you have to qualify your income based on: Proven Income & Stated Income.
It is extremely important to note that there are benefits and drawbacks to each path regarding Proven Income & Stated Income. To determine which path might be the best for you, you will likely have to consult with your trusted team of professionals that include: your mortgage agent, accountant, lawyer, financial adviser, etc.
Proceeding with this path as a self-employed individual is usually viewed as the ideal path. With Proven Income, lenders will simply take the two years’ average of the personal income you declare to the government on your tax returns. If your total income declared to the government is enough to help you qualify for the mortgage loan amount you are requesting, then you can be eligible for the least expensive mortgage products in the market (competitive rates, flexible terms, etc.). Also with going down this path, more lenders have self-employed mortgage products for individuals who can qualify based on Proven Income.
If your Proven Income is not enough to qualify for your loan amount needed, some lenders may allow certain business expenses to be added back to income such as capital cost allowance, interest expensed, etc. To determine options based on Proven Income, we would have to take a look at your tax returns and business documents as they are unique with every business.
If you are unable to proceed with the Proven Income path for whatever reason, whether it’s because you have a lot of business expenses or you prefer to pay yourself a small salary or dividends from your corporation), it’s important for you to know there are options via the Stated Income path.
The Stated Income path allows self-employed individuals to qualify for a mortgage based alternative verification methods. This path usually involves providing your recent 6/12 months of your business bank account statements, a self declaration of income letter, and a few other income verification documents to effectively state your income. The majority of mortgage lenders in the market today do not offer a Stated Income path with self-employed individuals, so it’s important for you to work with a professional who can educate and advise you of all your options.
If you would like to learn more about what you need to know about qualifying for a mortgage as a self-employed individual, then please give us a call at 647-996-6748 for a free, no obligation quote and consultation. At InTrend Mortgage, we take the time to understand our client’s preferences and needs when it comes down to structuring their mortgage financing options.