In the Canadian mortgage landscape, self-employed individuals face unique challenges when seeking home financing. With over 2.7 million self-employed Canadians, representing approximately 15% of the workforce, understanding this specialized mortgage option is essential for business owners, freelancers, and independent contractors looking to purchase property.
This guide examines the current state of self-employed mortgages in Canada, providing authoritative insights based on the latest policies and requirements from major Canadian lenders and insurers.
What are Self-Employed Mortgages?
Self-employed mortgage is an alternative lending option designed for Canadians who earn income through self-employment rather than traditional employment. These mortgages accommodate the unique income verification challenges that self-employed individuals face when applying for home financing.
Who Qualifies as Self-Employed?
A self-employed individual is defined as someone who:
- Works for themselves through securing contracts and servicing clients
- Does not work for an employer or earn a fixed salary from a third-party employer
- May include business owners, commission salespersons, freelancers, farmers, and fishers
For incorporated individuals, you’re considered self-employed if you own the corporation and receive a salary from it. Shareholders who only receive dividends and aren’t employees of the corporation are not classified as self-employed for mortgage purposes.
How many Types of Self-Employed Structures are there?
Self-employed individuals in Canada typically operate under one of these structures:
Sole proprietors with verifiable income
Individuals operating unincorporated businesses who can document at least two years of stable income through personal tax returns (T1s) and Notices of Assessment (NOAs).
Sole proprietors without verifiable income
Business owners who utilize significant tax deductions may have declared income that does not accurately reflect their true earning capacity.
Incorporated individuals with qualified income
Business owners who have incorporated their operations and can demonstrate stable income through salary, dividends, or a combination of both over a two-year period.
Incorporated individuals without qualified income
Corporate owners who primarily reinvest profits back into their business or utilize corporate tax strategies that minimize personal income.
Each structure has different tax implications and documentation requirements when applying for a mortgage. According to recent statistics from Statistics Canada, approximately 48% of self-employed Canadians operate incorporated businesses, while the remainder are unincorporated with or without employees.
Key Challenges for Self-Employed Mortgage Applicants
The primary challenge self-employed individuals face when applying for mortgages is income verification. Traditional borrowers provide T4 slips and pay stubs as proof of stable income, but self-employed borrowers often have:
- Fluctuating or irregular income patterns
- Tax strategies that minimize reported income
- Business expenses that reduce net income on tax returns
These factors can create a significant gap between an individual’s actual earning capacity and the income reported on tax returns, making it challenging to qualify for conventional mortgage products using standard income verification methods.
What Documents are Needed For A Self-Employed Mortgage Application?
As a self-employed individual seeking mortgage financing in Canada, you’ll need to provide more comprehensive documentation than traditional employees. This additional paperwork helps lenders assess your income stability and financial health despite the irregular income patterns typical of self-employment.
Proof of Self-Employment History
These documents verify the duration of your business operation.
- Articles of Incorporation (for incorporated businesses)
- Business Number Registration or GST/HST Account Number
- Business licenses or registration documents
Most lenders require at least 2-3 years of self-employment history, though some may consider applications with shorter timeframes.
Income Verification Documents
Canadian lenders typically recognize three approaches to income verification for self-employed applicants:
Traditional Income Confirmation
With traditional income confirmation, your personal income, as reported on tax returns, is used to qualify for the mortgage. This includes:
- Line 15000 (total income) from your T1 General income tax returns
- Typically averaged over two years
Would I Qualify? Most self-employed business owners would not be able to accurately confirm their “real” income using this method, as legitimate tax planning strategies often reduce taxable income.
Non-Traditional Income Confirmation
When your personal tax returns don’t reflect your true income capacity, lenders may consider:
- T2125 Business financial statements
- Bank statements showing business cash flow
- Corporation tax returns (T2) with potential “add-backs” or “gross-ups”
Would I Qualify? This is the most common option for self-employed individuals who minimize personal income for tax purposes but can demonstrate stronger business income.
Stated Income
Also known as “no income verification mortgages,” these allow qualified borrowers to declare their income without full documentation:
- The stated income must be reasonable for your industry and business type
- Requires stronger credit and larger down payments
- Only available through certain B lenders and private lenders
Would I Qualify? Anyone can state their income, but approval depends on reasonability, credit strength, and down payment amount. These mortgages typically come with higher interest rates and stricter terms.
Other Additional Supporting Documentations include:
- Bank statements (personal and business)
- Proof that HST/GST is paid in full
- Contracts showing expected future revenue
- Credit reports (personal and business)
- Proof of down payment (not gifted, in most cases)
Down Payment Requirements for a Self-Employed Borrower
The amount you can borrow as a self-employed individual depends on:
- The type of income verification you can provide
- Whether your mortgage will be default insured
- The lender’s specific policies
With Mortgage Default Insurance
- Traditional Income Verification: Up to 95% LTV (5% minimum down payment)
- Non-Traditional Income Verification: Up to 90% LTV (10% minimum down payment)
- Stated Income: Up to 90% LTV (10% minimum down payment)
Without Mortgage Default Insurance
- Traditional/Non-Traditional Income Verification: Up to 80% LTV (20% minimum down payment)
- Stated Income: Typically 65-80% LTV (20-35% minimum down payment)
Which Lenders Offer Self-Employed Mortgages in Canada?
These documents verify the duration of your business operation. Most lenders require at least 2-3 years of self-employment history, though some may consider applications with shorter timeframes.
A Lenders: Major Banks and Credit Unions
Canada’s major banks and credit unions (A Lenders) account for approximately 80% of mortgage originations, including many self-employed mortgages.
Major banks like National Bank, RBC, and Scotiabank generally offer the most favourable rates but maintain stricter qualification criteria.
Credit unions often provide more flexible options for self-employed borrowers, with some offering:
- Portfolio lending (held on their own books rather than sold to investors)
- Community-based decision-making that considers local business conditions
- More holistic application assessment beyond standardized criteria
B Lenders
B lenders typically have more flexible requirements compared to A lenders, but charge higher interest rates. Those are:
- Equitable Bank
- Home Capital
- MCAP
- Merix Financial
- Street Capital Financial Corporation
B Lenders generally charge 1-2% higher interest rates than A Lenders due to increased risk and less stringent qualification requirements. However, mortgages insured through Canada Guaranty or Sagen may qualify for more competitive rates.
Private Lenders
Private lenders should be considered a last resort due to significantly higher interest rates and fees. They focus primarily on:
- Property value
- Borrower creditworthiness
- Reasonable stated income
Private lenders should be considered a temporary solution rather than a long-term financing strategy. They provide bridge financing until you can qualify for conventional mortgages through improved business history, increased down payment, or enhanced credit profile.
How Self-Employed Mortgage Applicants Improve Approval Chances?
Self-employed individuals face a dilemma: minimizing taxable income reduces income tax liability but also reduces mortgage qualification amounts. Consider these strategies:
- Plan ahead: If you intend to apply for a mortgage, consider reporting higher personal income for 2-3 years before applying
- Work with knowledgeable professionals: Find mortgage brokers and lenders experienced with self-employed borrowers
- Consider gross-up options: Some lenders will add back certain business expenses when calculating income
Explore more alternative mortgage solutions to navigate Canada’s complex housing market
FAQs about Self-employed mortgages
How much can I borrow for a mortgage if I'm self-employed?
Your borrowing capacity depends primarily on your verifiable income, debt service ratios, and down payment. With mortgage default insurance, you can borrow up to 95% of the property value (with traditional income verification) or 90% (with stated income programs). You can typically borrow up to 80% of the property value without insurance.
Can I get a self-employed mortgage without proof of income?
Yes, through stated income mortgage programs offered by specific lenders and insured by Sagen or Canada Guaranty (not CMHC). These programs allow qualified borrowers to declare their income without standard verification documentation, provided the stated income is reasonable for their business type and industry.
Are mortgage rates higher for self-employed borrowers?
Not necessarily. Self-employed borrowers who can verify their income through traditional methods can access the same competitive rates as salaried employees. However, rates typically increase as income verification becomes less traditional.
What property types face restrictions with self-employed mortgages?
Self-employed mortgages, especially stated income programs, often have property type restrictions. Most lenders limit stated income mortgages to owner-occupied residential properties with 1-2 units. Properties facing greater restrictions include commercial residential (5+ units), unique or rural properties, vacation homes, investment properties, and non-standard construction types. These restrictions become more significant as you move from traditional income verification to stated income and private lending options.
Do all mortgage brokers handle self-employed mortgage applications?
No. While most mortgage brokers can process self-employed applications, not all have the specialized knowledge or lender relationships to optimize your approval chances. Look for brokers who specifically advertise expertise with self-employed clients, have relationships with lenders offering business-for-self programs, and demonstrate an understanding of business financial statements and income verification alternatives. The right broker can significantly improve your approval odds and secure better terms.
Summary
As the self-employed workforce continues to grow in Canada, lenders are increasingly developing specialized products to serve this important segment of the market. Self-employed mortgages in Canada provide viable pathways to homeownership for business owners, freelancers, and independent contractors, despite the unique challenges associated with verifying income.
For personalized advice on self-employed mortgage options, consult with a mortgage broker at BestMO who can help identify the best lending solutions for your unique situation.