Being self-employed shouldn't stop you from homeownership—but it does require a different approach. Lenders need to verify income differently when you don't have a traditional employer, and understanding these requirements can mean the difference between approval and rejection.
The Self-Employed Challenge
Why is it harder for self-employed Canadians to get mortgages?
- Income verification: No employer to confirm income
- Tax optimization: Business write-offs reduce reported income
- Income variability: Lenders prefer stable, predictable income
- Documentation burden: More paperwork required
The good news: Multiple programs exist specifically for self-employed borrowers, and a knowledgeable broker can navigate these options.
Documentation Requirements
Traditional (Full Documentation) Programs
Strongest approval rates, best rates:
| Document | Purpose |
|---|---|
| T1 General (2 years) | Personal tax returns showing Line 150 income |
| Notice of Assessment (2 years) | CRA confirmation of filed taxes |
| Business financial statements | Income and expense verification |
| Articles of incorporation | Business ownership proof |
| Business bank statements | Cash flow verification |
Stated Income Programs
When declared income is lower than actual earnings:
| Document | Purpose |
|---|---|
| Bank statements (12-24 months) | Demonstrate actual cash flow |
| Business license | Proof of legitimate business |
| CRA Business Number | Business registration |
| Accountant letter | Professional income confirmation |
| Client contracts | Income source verification |
Income Calculation Methods
Line 150 (Net Income) Method
Most traditional lenders use this:
- Takes net income from tax returns (Line 150)
- Averages 2 years of income
- Requires stable or increasing income trend
- Challenge: Aggressive write-offs hurt qualification
Example:
- Year 1 net income: $75,000
- Year 2 net income: $85,000
- Qualifying income: $80,000 (average)
Gross-Up Method
Some programs add back certain deductions:
| Deduction Type | Gross-Up Treatment |
|---|---|
| Depreciation/CCA | Often added back |
| Home office | Often added back |
| Vehicle expenses | Partially added back |
| Meals/entertainment | Usually not added back |
Result: Higher qualifying income without changing your taxes.
Ready to Explore Your Options?
Get pre-approved today with a broker who specializes in self-employed mortgages. We'll find the right program for your situation.
Lender Options by Profile
| Program Type | Down Payment | Rate Premium | Best For |
|---|---|---|---|
| Traditional A-Lender | 5-20% | None | High declared income |
| Stated Income (A-) | 10-20% | +0.25-0.50% | Moderate write-offs |
| Alt-A Lender | 15-20% | +0.50-1.00% | Lower declared income |
| B-Lender | 20%+ | +1.00-2.50% | Significant write-offs |
| Private | 25%+ | +4.00-8.00% | Difficult situations |
Strategies to Strengthen Your Application
1. Plan Your Taxes 1-2 Years Ahead
The mortgage qualification trade-off:
| More Write-Offs | Fewer Write-Offs |
|---|---|
| Lower taxes now | Higher taxes now |
| Lower mortgage qualification | Higher mortgage qualification |
| May need larger down payment | Standard programs available |
Tip: If you're planning to buy in 2026-2027, consider optimizing 2024-2025 tax returns for higher net income.
2. Maintain Clean Separation
- Separate business and personal bank accounts
- Consistent income deposits to personal account
- Clear paper trail for all funds
3. Build Exceptional Credit
Higher credit scores can offset income concerns:
- Target 720+ for best options
- Keep utilization low
- Perfect payment history
4. Prepare a Larger Down Payment
More equity = more options:
- 20%+ opens most self-employed programs
- 25%+ provides best rates
- 35%+ qualifies for almost any program
5. Document Everything
Proactive documentation helps:
- Engagement contracts with clients
- Business growth trajectory
- Industry context for your income
Common Self-Employed Scenarios
Scenario 1: Established Business, Heavy Write-Offs
Profile: 10 years in business, $200K gross revenue, $60K net (Line 150), $120K actual personal spending
Solutions:
- Stated income program with bank statement proof
- Gross-up program adding back depreciation/home office
- Larger down payment (20-25%)
Scenario 2: New Business
Profile: 18 months self-employed, previously employed, growing income
Challenges: Most programs require 2 years in business
Solutions:
- Some lenders accept 1 year with previous related experience
- Add previous employment income if recent
- Co-signer or larger down payment
Scenario 3: Gig Economy/Multiple Income Streams
Profile: Freelancer with 3-4 income sources, variable monthly income
Solutions:
- 24-month bank statement program averaging all deposits
- Focus on overall income trend
- Document each income source
FAQ
Q: How much income will lenders use for my qualification?
A: Traditional programs use average of 2 years' Line 150. Stated income programs use bank deposits to estimate reasonable income for your industry.
Q: I just started my business. Can I qualify?
A: It's challenging but possible with 12-18 months history, especially if you have previous experience in the same industry or strong compensating factors.
Q: Should I incorporate for mortgage purposes?
A: Not specifically for mortgage purposes—incorporation has tax and liability implications that should be discussed with your accountant. Mortgages work with sole proprietors, partnerships, and corporations.
Q: Can I use rental income to help qualify?
A: Yes—rental income can supplement self-employment income. See our guide on using rental income for qualification.
Q: My income dropped last year. Will that hurt me?
A: Declining income is a red flag for lenders. If there's a good explanation (COVID impact, one-time event, strategic investment in business), provide documentation. Ideally, wait until you have a year of recovered income.
What's Next
Don't navigate self-employed mortgages alone. Get pre-approved with our team who specializes in non-traditional income situations. We'll find the right program for your specific business and income profile.
Ready to Get Started?
Contact us today for personalized mortgage advice and competitive rates.
