Question 1

What counts as self-employed income in Ontario?

Accepted Answer

Self-employed income includes earnings from sole proprietorships (reported on T2125), partnerships, or incorporated businesses where you're a shareholder drawing salary and/or dividends. Lenders typically review your T1 General tax returns, Notices of Assessment, and business financials to assess your income stability and qualification.

Question 2

Why does my taxable income look low compared to my actual cash flow?

Accepted Answer

Many self-employed individuals use legitimate business expenses and tax strategies to minimize taxable income. While this is tax-efficient, it can make mortgage qualification challenging. Some lenders may consider 'add-backs' for certain expenses like depreciation or one-time costs, though this varies by lender and is assessed case-by-case.

Question 3

Do lenders use a two-year average or most recent year income?

Accepted Answer

Most traditional lenders use a two-year average of your self-employed income to assess stability. However, if your most recent year shows significant growth, some lenders may weight it more heavily or consider trend analysis. Declining income may require additional explanation or mitigating factors.

Question 4

What alternative documentation options are available?

Accepted Answer

Some lenders offer alternative documentation programs that may consider bank statement deposits, business revenue patterns, or stated income approaches. These programs typically require higher down payments (20-35%), strong credit scores, and may carry different rate structures. Availability and terms vary significantly by lender.

Question 5

How are bank-statement programs reviewed by lenders?

Accepted Answer

Bank-statement programs analyze your business account deposits over 12-24 months to estimate income. Lenders look for consistent deposit patterns, business-related transactions, and may apply a percentage factor to account for business expenses. Personal deposits, transfers, and one-time transactions are typically excluded from income calculations.

Question 6

What are add-backs and when might they apply?

Accepted Answer

Add-backs are legitimate business expenses that lenders may add back to your income for qualification purposes. Common examples include depreciation, amortization, interest expenses, and one-time capital investments. Not all lenders offer add-backs, and those that do have specific guidelines about which expenses qualify. An accountant letter is often required.

Question 7

Do GST/HST registration, payroll, and business licences matter?

Accepted Answer

Yes, these documents help verify your business legitimacy and operational history. GST/HST registration shows revenue thresholds, payroll records demonstrate employee management, and business licences confirm legal operation. While not always required, they strengthen your application and may provide additional income verification options.

Question 8

What credit score do I need as a self-employed borrower?

Accepted Answer

Credit requirements vary by lender and program. Traditional lenders typically prefer credit scores of 680+, while alternative programs may accept 600-650 with compensating factors. Self-employed borrowers often face slightly higher credit expectations than salaried employees. Strong credit can also help offset income documentation challenges.

Question 9

Can I use gifted funds for my down payment?

Accepted Answer

Yes, gifted funds from immediate family members are generally acceptable for down payments. You'll need a gift letter stating the funds are a gift (not a loan), proof of the donor's ability to gift, and documentation of the transfer. Some lenders have specific requirements about the percentage of down payment that can be gifted.

Question 10

How do condo fees, property taxes, and utilities affect my qualification?

Accepted Answer

These ongoing costs are included in your debt service calculations along with your mortgage payment. Lenders use Gross Debt Service (GDS) and Total Debt Service (TDS) ratios to ensure you can afford all housing costs plus other debts. High condo fees or property taxes can reduce your maximum purchase price or borrowing capacity.

Question 11

How long should I wait to apply if I'm newly self-employed?

Accepted Answer

Traditional lenders typically require 2 years of self-employment history with tax returns and NOAs. However, if you transitioned to self-employment in the same industry where you were previously employed, some lenders may consider your total industry experience. Alternative programs may have more flexible timelines but require stronger compensating factors.

Question 12

Can co-signers or guarantors help with my application?

Accepted Answer

Yes, a co-signer or guarantor with stable employment income can strengthen your application by adding their income and credit to the qualification. They become equally responsible for the mortgage. This can be particularly helpful for newly self-employed borrowers or those with fluctuating income. The co-signer's debt obligations are also considered.

Question 13

Should I choose fixed or variable rate for business cash flow stability?

Accepted Answer

This depends on your business cash flow predictability and risk tolerance. Fixed rates provide payment certainty, which many business owners prefer for budgeting. Variable rates may offer lower initial costs but fluctuate with market conditions. Consider your business seasonality, revenue stability, and comfort with payment changes when deciding. This is a personal decision, not financial advice.

Question 14

When are appraisals needed and who arranges them?

Accepted Answer

Appraisals are typically required for purchase transactions and refinances to confirm property value. The lender orders the appraisal through an independent appraiser, and the cost is usually paid by the borrower (typically $300-500 in Ontario). The appraiser assesses the property's market value based on comparable sales, condition, and location.

Question 15

What if my last year was an outlier (growth or dip)?

Accepted Answer

Significant income changes require explanation. For growth, provide context about new contracts, business expansion, or market conditions that support sustainability. For dips, explain temporary factors like maternity leave, industry disruption, or one-time expenses. Supporting documentation like current contracts, accounts receivable, or business plans can help demonstrate your actual earning capacity.

Question 16

How long does the funding process usually take?

Accepted Answer

Timeline varies based on documentation completeness, lender processing times, and transaction complexity. With complete documentation, expect 3-5 weeks for purchases and 2-4 weeks for refinances. Self-employed applications may take slightly longer due to additional income verification. Rush situations can sometimes be accommodated with expedited processing.

Question 17

What about renewal and future planning for self-employed clients?

Accepted Answer

Renewal planning is important for self-employed borrowers. I recommend reviewing your mortgage 4-6 months before maturity to assess your current income documentation, business performance, and market conditions. This allows time to update financials, explore rate options, and make strategic decisions about your mortgage structure based on your evolving business needs.

Question 18

Can I qualify if I have multiple income sources (employment + self-employment)?

Accepted Answer

Yes, many borrowers have hybrid income situations. Lenders will consider both your employment income (T4) and self-employment income, though they may apply different qualification methods to each. Having stable employment income can strengthen your application and may allow for more flexible treatment of your self-employment income.

Self-Employed Mortgages in Ontario—Clear Options for Business Owners