Does being self-employed mean renting is your only option?

Not at all, which is great news if you’re a freedom-loving entrepreneur who wants to get your foot on the property ladder.

According to Canada’s latest Labour Force Survey, about 2.75 million Canadians work for themselves, which means 13% of our workforce doesn’t have their taxes deducted by an employer.

While most self-employed people choose that route for autonomy and flexibility, with more freedom comes more risk, which can impact your path to homeownership.

That’s why Calgary-based mortgage broker Remi Korent says he enjoys showing his self-employed clients they can still get approved, despite what their bank may have told them. Success as a freelancer or gig worker requires assembling the right team: a mortgage broker or agent, accountant, lawyer, and REALTOR® who’s worked with self-employed people before. 

Korent’s depth of experience is why he can bust common myths, like self-employed people always get dinged with a higher rate—not necessarily true, he says.

Another myth is that self-employed people get rejected without two years of documented business income. But there’s an exception to that rule for some folks. 

“Pulling a self-employment application together is like solving a puzzle, because there are so many different ways to cut it,” says Korent.

That said, there’s no reason the challenge should be daunting to a savvy entrepreneur. Similar to owning a business, you get to carve your own path. 

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The path of least resistance

What lenders need to see from an applicant is income stability. And while most self-employed people will need to produce two years of documented income to prove that (usually with their T1s) there is at least one exception. 

If you recently held a full-time position in a specific field with a single employer for several years, and you left that job to take a contract position or become a consultant in the same field, you may qualify for a mortgage by submitting the T4s from your last job. The critical piece is your self-employment work must be in the same field as the work you did for your former employer.

If that’s not the case for you, most lenders require personal tax Notices of Assessment from two to three years prior, along with:

• financial statements for your business;

• GST/HST payment confirmation;

• contracts showing expected business and revenue for the next few years;

• personal and business credit scores;

• proof that your down payment hasn’t been gifted;

• proof that you’re a principal owner in the business; and

• a copy of your borrower’s business or GST licence or Article of Incorporation showing you are licensed.

Ideally, you should also work with your REALTOR® to ensure you’re looking at properties that you can afford based on your prior income and what you can put down.

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The path with a fork in the road

The majority of self-employed Canadian workers will need to do a little more work to prove income stability. While documenting two years of income is commonly known, Korent has another tip you don’t hear very often. 

“We tell our clients to put us in touch with their accountant, so we can work together and take a holistic approach to qualifying them for a mortgage,” he says. 

And that’s a connection you should make early on and before you file your taxes, so your accountant can consider the best way to structure your income.

Korent says there are two typical routes for an approval: 

• Pay yourself enough income to qualify for a higher mortgage at a lower interest rate. With this option, you’ll pay higher income taxes.
  

• Pay yourself less and reduce your income taxes while saving for a 20% down payment. But you’ll need to go with a B-lender and pay a higher interest rate for this approval.

“What I like to do is present both scenarios,” says Korent. “Sometimes we’ll ask their accountant to throw in a dividend to increase their income. Or, if you’ve written off living expenses and your vehicle for your business, those expenses may count as income.”

At this stage, working with a REALTOR® who knows the inventory of properties in your desired community will help you find the best property within your budget.

“It helps to have the professionals working together towards the same goal,” Korent adds.

Once you’ve chosen the best option for your needs, your accountant can work with your broker to ensure your two years of documented income is presented as effectively as possible.

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The path where you rev your engine

With your team of real estate professionals assembled and your options considered, you can consider how to take your real estate investment strategy to the next level.

Consider these questions:

• Is it possible to save up for a bigger down payment to increase the mortgage you can afford, while improving your chances of approval?

• Would it help to pay down some debt first?

• Would you consider supplementing your income with a legal income suite to help weather economic uncertainty?

• What if you focused exclusively on a property that would be self-sustaining—like a triplex or fourplex—so you can build your retirement nest egg?

Each question should be seriously considered when you’re self-employed, but you’ll need to expand your team to include a real estate lawyer who understands income properties, a reliable contractor, and possibly a property manager if you consider the last point above.

If an investment property sounds like the option for you, ask your REALTOR® how often they come to market and what it takes to land one. While you’re building a case for your mortgage approval, they can set up property alerts to help you get the lay of the land.

Finally, recent changes mean first-time home buyers and anyone purchasing a new build can now get a 30-year mortgage when putting less than 20% down.

“If cash flow is king, you might want that lower payment,” said Korent. “You can always increase the payments so you’ll pay the same interest you would on a 25-year mortgage in the end.”

If you don’t have a self-employment expert mortgage broker yet, ask your REALTOR® for a recommendation.

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SOURCE AND FOR MORE INFORMATION: Getting a Mortgage as a Freelancer or Gig Worker