Self-Employed Mortgage Requirements
A-Lender (Best Rates) Requirements
| Requirement | Details |
|---|---|
| Income documentation | 2 years of T1 Generals + NOAs (Notice of Assessment) |
| Income calculation | Average of 2-year net income (line 15000) |
| Down payment | 5% minimum (insured) or 20% (conventional) |
| Credit score | 680+ |
| GDS/TDS ratios | Same as employed (39%/44%) |
| Business registration | Sole proprietor, partnership, or corporation |
| Business duration | 2+ years (most lenders) |
B-Lender (Easier Qualification) Requirements
| Requirement | Details |
|---|---|
| Income documentation | Less strict — may accept bank statements, stated income |
| Down payment | 10-20% minimum |
| Credit score | 600-650+ |
| Interest rate | 0.5-2% higher than A-lenders |
| Lender fee | 0.5-1% of mortgage |
| Business duration | 1-2+ years |
The Self-Employed Income Problem
| Scenario | Gross Revenue | Net Income (T1) | Qualifying Mortgage |
|---|---|---|---|
| Sole proprietor | $150,000 | $80,000 (after deductions) | Based on $80,000 |
| Corporation (salary) | $120,000 salary | $120,000 | Based on $120,000 |
| Corporation (dividends) | $80,000 dividends | Grossed-up amount | Varies by lender |
| Spouse employed + self-employed | $60K + $60K net | $120K combined | Combined income |
The challenge: Self-employed people deduct expenses to minimize tax, but lenders use net income to qualify. Lower tax bill = lower qualifying income.
Income Documentation by Business Type
| Business Type | Documents Needed |
|---|---|
| Sole proprietor | T1 General (2 yrs), Statement of Business Activities (T2125), NOAs |
| Partnership | T1 General (2 yrs), T5013 slips, partnership agreement |
| Corporation | T1 + T4 (salary), T5 (dividends), corporate T2 returns, corporate NOAs |
| Freelancer/contractor | T1 General (2 yrs), T4A slips, contracts/invoices |
Strategies to Qualify for More
| Strategy | How It Works |
|---|---|
| Reduce deductions | Claim fewer expenses for 2 years before applying (increases net income but increases tax) |
| Add back certain deductions | Some lenders add back depreciation/amortization to net income |
| Use a co-borrower | Spouse’s employed income combined with yours |
| Larger down payment | 20%+ avoids CMHC insurance and opens more lenders |
| B-lender with stated income | State reasonable income with 10-20% down |
| Use retained earnings | Show corporate retained earnings to support income |
| Switch to salary from corp | Paying yourself a regular T4 salary is cleanest for lenders |
Lender Options
| Lender Type | Examples | Rate Premium | Down Payment | Best For |
|---|---|---|---|---|
| A-lender (Big 5) | RBC, TD, BMO | 0% | 5-20% | Strong documented income |
| A-lender (monoline) | MCAP, First National | 0% | 5-20% | Competitive rates |
| B-lender | Equitable, Home Trust, ICICI | 0.5-1.5% | 10-20% | Below-guideline income |
| Private lender | Various | 3-10% | 20-35% | Last resort |
| Credit union | Various | 0-0.5% | 5-20% | Flexible underwriting |
Step-by-Step Process
| Step | Action |
|---|---|
| 1 | Organize 2 years of tax returns + NOAs |
| 2 | Calculate your 2-year average net income |
| 3 | Check your credit score (free at Borrowell) |
| 4 | Contact a mortgage broker (they know self-employed-friendly lenders) |
| 5 | Get pre-approved |
| 6 | Provide additional docs if requested (bank statements, contracts) |
| 7 | Close the mortgage |
Costs Unique to Self-Employed
| Cost | Amount | When |
|---|---|---|
| CMHC insurance (if <20% down) | 2.8-4.0% of mortgage | Added to mortgage |
| B-lender fee | 0.5-1.0% of mortgage | At closing |
| Broker fee (may be higher) | Usually lender-paid | At closing |
| Appraisal | $300-500 | During approval |
| Business verification | $0-200 | Some lenders require |
Common Mistakes
| Mistake | Solution |
|---|---|
| Maximizing deductions right before applying | Plan 2 years ahead — balance tax savings with mortgage qualification |
| Not using a mortgage broker | Brokers know which lenders are self-employed-friendly |
| Applying at your own bank only | Your bank may not be the most flexible |
| Mixing personal and business finances | Keep them separate — lenders want clean documentation |
| Incorporating just before applying | Lenders want 2+ years of history |
| Not having a CPA | Professional financial statements strengthen applications |