Mortgage for Recently Self-Employed (Under 2 Years) in Canada

RefinancePro.club

Getting a Mortgage as a Recently Self-Employed Borrower

In Canada, self-employed workers represent a growing proportion of the workforce. According to Statistics Canada, more than 2.6 million Canadians work for themselves. Yet, the mortgage system is primarily designed for salaried employees, creating specific obstacles for entrepreneurs, freelancers, consultants, and independent professionals who do not yet have two years of tax history. Understanding the requirements of different lenders and available programs is the key to turning this challenge into a structured process.

Why Two Years of History Are Required

A-lenders use the average of declared income from the last two Notices of Assessment (NOAs) from the Canada Revenue Agency to establish eligible income. This approach smooths out year-over-year income variations, which are common among self-employed individuals. The Office of the Superintendent of Financial Institutions (OSFI) requires under Guideline B-20 that the income used for qualification be "reasonable and verifiable." Without two NOAs, verification becomes more complex for traditional lenders.

Programs for Recently Self-Employed Borrowers

Stated income programs from B-lenders: Equitable Bank, Home Trust, and other B-lenders offer programs that allow self-employed borrowers to declare a reasonable income for their industry. The lender verifies the plausibility of the declared income by comparing it to industry data. The minimum down payment is 20% to 35%, and the rate is 0.5% to 1.5% higher.
Accepted alternative documentation: In the absence of two NOAs, alternative lenders accept a combination of: business bank statements (6 to 12 months) showing regular deposits, financial statements prepared by a Chartered Professional Accountant (CPA), signed contracts and issued invoices, T1 General with a single NOA, and a letter from the CPA attesting to the nature and viability of the business.
Program with guarantor or co-borrower: Adding a co-borrower or guarantor with stable employment income and good credit can enable qualification with an A-lender, even with less than two years of self-employment. However, the co-borrower becomes responsible for the entire mortgage debt.
Private lenders as a transitional solution: For self-employed borrowers with less than one year and insufficient documentation, a short-term private loan (1 to 2 years) can serve as a bridge while accumulating tax history. Rates are significantly higher (7% to 12%), but this strategy allows immédiate property acquisition.

Optimizing Your Application: Practical Tips

File your tax returns as early as possible each year to accelerate the receipt of your NOA.
Maintain separate bank accounts for business and personal finances, which makes it easier to demonstrate income.
Discuss with your accountant the balance between tax optimization and mortgage qualification before filing your returns.
Accumulate the largest down payment possible: the higher the down payment, the more financing options become available.
Obtain a pre-qualification from an AMF-certified mortgage broker at least 6 months before your planned purchase to identify gaps to address.

Frequently Asked Questions

Can I get a mortgage with only one year of self-employment?

Yes, but options are more limited. Some B-lenders accept a single Notice of Assessment (NOA) accompanied by strong supporting documentation: signed contracts, business bank statements, financial statements, and an accountant's letter. The required down payment will generally be 20% to 35%, and the rate will be higher.

What documentation should I prepare as a self-employed borrower?

Prepare your CRA Notices of Assessment (even just one), financial statements (balance sheet and income statement), business bank statements for the last 6 to 12 months, your Quebec Enterprise Registrar (REQ) registration, current contracts or client letters, and a letter from your accountant confirming the nature and viability of your business.

Is income declared on tax returns the only income considered?

For A-lenders, yes: they use line 15000 (total income) from your tax return, verified by the NOA. However, stated income programs from some B-lenders allow consideration of actual income before tax deductions, recognizing that self-employed individuals often legitimately optimize their deductions.

How far in advance should I prepare my mortgage application as a self-employed borrower?

Ideally, start preparation 6 to 12 months before your planned purchase. This gives you time to file your tax returns, accumulate solid banking documentation, and consult an AMF-certified mortgage broker who can guide you through the steps to strengthen your file.

Does incorporating my business change the criteria?

Yes. If you are incorporated, lenders consider the salary and dividends you pay yourself personally, as reported on your T4 or T5. The corporation's income is not directly used. However, some B-lender programs allow consideration of business income if you are the majority shareholder, with supporting documentation.