As a self-employed individual, applying for a mortgage can seem daunting due to the different income verification process. However, with the right guidance and preparation, the process can be straightforward and rewarding. Here’s a comprehensive guide to help self-employed Canadians navigate the mortgage process with Shelto, a premier mortgage brokerage.
- Understand the Self-Employed Mortgage Landscape
Self-employed individuals face different challenges when applying for a mortgage. Because their income might be irregular or harder to predict, lenders often require more documentation to verify their financial stability.
- Maintain Accurate Financial Records
Keeping detailed and organized financial records is vital. These documents demonstrate your income stability and earning potential to lenders. You’ll need to prepare:
- Financial statements for your business
- Proof of your business registration
- Bank statements showing Business Income
- Contracts showing future income (if applicable)
- No tax document needed if we are going for alternate lenders
- No bar on Credit Score if we are going for alternate lenders
- Calculate Your Debt-to-Income Ratio
Your debt-to-income ratio (DTI) is a significant factor in your mortgage approval. Lenders prefer a DTI ratio 60% or less. To calculate your DTI, divide your total monthly debt payments by your gross monthly income.
- Save for a Larger Down Payment
A larger down payment can make your mortgage application more attractive, reducing the risk for the lender. While the minimum down payment in Canada is 5% of the home’s purchase price, self-employed individuals should consider saving more to strengthen their application, typically 20% down payment needed in most of the Self-Employed Mortgage.
- Understand Different Types of Mortgages
There are different mortgage options available for self-employed individuals, including:
- Traditional mortgages: If you can meet the standard income verification requirements, this might be a good option.
- Stated income mortgages: These are designed for self-employed individuals who cannot verify their income in the traditional way. You’ll need to provide a substantial down payment and have a good credit score.
- Hire a Mortgage Broker
Working with a mortgage brokerage, such as Shelto, can simplify the process. They can guide you through the application, help you gather necessary documentation, compare different mortgage options, and negotiate with lenders on your behalf.
- Submit Your Application
Once you’re ready, submit your mortgage application. Alongside the application, provide all the necessary documentation. Ensure everything is accurate and up-to-date to avoid delays or potential declines. If you are looking for hassle free mortgage experience, you may contact any Shelto Agents.
- Mortgage Approval
Once you’ve applied for refinancing, the Agent should provide you with a Mortgage payment estimates, amortization schedule and conditional approval from the lender. This document is called Commitment Letter, which outlines the terms of the loan, the closing costs, and other essential details. Review it carefully to ensure it aligns with your initial discussions.
- Close on Your Home
Once your mortgage is approved, the last step is the closing process. You’ll sign the mortgage documents, pay the closing costs and down payment, and officially become a homeowner.
Securing a mortgage as a self-employed individual can be a complex process, but it’s not impossible. By understanding the unique challenges and requirements, you can navigate this process successfully. And remember, you’re not alone – Shelto is here to support you every step of the way.
