Qualifying for a Mortgage as Self-Employed
Lending standards for self-employed are challenging, but I’m here to help
I always set reasonable expectations and am completely honest with clients. Most banks and lenders require a minimum two-year track record of earnings. As I mentioned above, these tax returns may not reflect your actual take-home income. There are lenders that I work with that will consider less than a two-year history of income, but once again, they may come with a higher mortgage rate and possibly restricted terms.
As a self-employed person, you should be writing off a number of expenses to lower your net income for tax purposes. For mortgage applications, however, this is not ideal. Lenders calculate your debt-to-income ratio – a measure of how much of your income is used to service your debts – using net income after expenses. Because you might be deducting a lot of expenses and showing a lower net income, your debt service ratios will not be as appealing to lenders. That’s where it becomes challenging because lenders prefer standard debt-to-income ratios of approximately 35 – 44 per cent.