Generally, majority of people with no income are small business owners who have no method of proving their income on paper. Lenders are aware that small business owners are able to reduce their reported income by expensing items related to their business operations. However, by reducing your income to save on taxes, you reduce the amount of reported income needed to qualify for a mortgage. Therefore, mortgages for the self-employed are an excellent option if your business has a strictly cash component or you have numerous write offs for business expenses in order to reduce your taxable income.
More recently there have been many new changes that effect self-employed loans, when the borrower has no proof of income. Fortunately, custom fit home buyer loans are a realistic option for these small business owners.
How SELF EMPLOYED LOANS work
To qualify for a no income mortgage, you must to have owned a business for a minimum of two full years, your business must be registered as a self-employed proprietorship (not incorporated), and you must have good credit, a business bank account, and declare income on your tax returns.
You must have filed your personal taxes for the minimum two years (or longer, if the business has run longer) and have your tax returns and CRA Notice of assessment available. You must not owe taxes to the CRA and you must have proof of payment on any due balances.
You must have a two-year averaged CRA personal Notice of Assessment income available for a no income loan. If you are a small amount short to qualify, we are able to look at your tax returns in order to find qualifying expenses to add back and raise your income.
For example, let’s say this is a small shortfall self-employed registered proprietor’s income verified mortgage:
- $49,000 Year 1 – Line 150 on your CCRA Notice of Assessment
- $65,000 Year 2 – Line 150 on your CCRA Notice of Assessment
- $114,000 two year total / 2 years = $57,000 your two year average
Mortgage brokers can find taxable items that we are able to add back, which add up to $8,550, giving us a total income of $65,550.
Mortgage brokers have access to multiple lenders who will allow the above formula to qualify for mortgages for self employed.
If, however, your two-year average is not high enough to qualify, then we are able to move you to an alternative mortgage financing option, which has a slightly higher interest rate and a 15% – 20% down payment to buy or up to 80% of home value to refinance.
Based on the quality of your application and credit, property, area and size of municipality, alternative mortgage financing is available with a 15-20% down payment in order to buy an owner-occupied home. For rural properties, a down payment of 35% is required for septic and well systems.
You are eligible for this mortgage even if you are currently in your first year of starting your business, but close to twelve months. You must provide proof of self-employment, through either Articles of Incorporation or business registration. A few months of a business bank account history as well as several invoices must be used to support your income required to qualify.
Our lenders also accept applicants with both good and poor credit. As a small-time business owner, lenders understand your situation and offer mortgages for self employed to buy homes and rental properties or for renovation mortgages.
However, the quality of your credit will affect your interest rate and how high the loan you will be eligible for is. The main factors that will impact no income mortgages are the qualities of your property such as marketability and location.
Ontario alternative mortgage lenders who deal with no income mortgages will not solely rely on traditional proof of income such as tax returns. They will also require your business registration, bank statements showing deposits in order to justify the amount of stated income needed to qualify for a mortgage plus invoices and other requirements based on your specific circumstances.
The interest rates on mortgages for self employed no proof of income are a slightly higher than bank rates. Furthermore, lender fees could also apply and you will need a minimum 15% – 20% down payment to buy a house, depending on your area and your credit. The down payment can be from your own personal funds, gifted or invested.
The alternate mortgage financing residential lenders will also allow you a second private mortgage on up to 90% of purchase price. However, the remaining 10% down payment and closing costs must come from your own savings.
Overall, alternate lenders may provide you with a mortgage for 65% – 85% of purchase price depending on your unique circumstances, the quality of your property and the strength of your application.
If needed, a second mortgage can be used to fill in the first mortgage. An interest only second mortgage will allow you to keep your payments low and realistic.
What if you do not qualify for any of the above?
If you have debt issues or were recently discharged from bankruptcy or consumer proposal – please see our bad credit mortgages page. We will be able to offer you alternative options to ensure you are able to receive a mortgage that fits your needs.
You can also visit our private mortgages page. You may be able to buy a house through a private mortgage by applying for a first or second private mortgage or both. Private lenders will be able to source out loans for you in a time-efficient manner.