Self-Employed Mortgages
The short version
Self-employed borrowers get mortgages every day in Canada. The complication is that lenders assess you on filed income after expenses, and good tax planning deliberately makes that number small. Most prime lenders want two years of filed returns and use the two year average, sometimes grossing it up to account for legitimate write offs. Where that average will not support the mortgage, two other routes exist: stated income programs that look at the plausibility of your earnings rather than your return, and alternative lenders that assess the business itself. Both are normal, both are widely used, and neither is a black mark. What matters most is preparation, because a complete file moves quickly and an incomplete one stalls. Approvals are on approved credit.
The problem nobody warns you about
Your accountant's job is to reduce your taxable income. Your lender's job is to lend against your taxable income. Those two objectives are directly opposed, and most business owners only discover it when they apply for a mortgage and find the number is a fraction of what they actually live on.
It is not a failure on anyone's part. A business owner earning well and writing off legitimately can show a net income that a salaried employee would struggle to rent on. The entire alternative lending market exists in part because of this gap.
How lenders actually read your income
Prime lenders start with line 15000 of your T1 and take the two year average, using the Notices of Assessment as proof. If the trend is rising they may use the most recent year. If it is falling they will use the lower figure or the average, never the better one.
From there, treatment varies more than most borrowers realize.
- Gross up. Some lenders increase your declared income by a set percentage to reflect that business owners deduct expenses an employee could not. This is a standard practice, not a favour.
- Add-backs. Others work from the business financials and add back expenses that are not true cash outflows, such as depreciation, amortization, a home office, or a vehicle used partly for business.
- Corporate income. If you are incorporated and retain earnings in the company, some lenders will consider those retained earnings alongside what you pay yourself. Many will not.
The practical consequence is that the same file produces materially different approvals at different lenders. That difference is where a broker earns their keep.
Your three routes
Prime lender on filed income. The cheapest option and the first one we test. If your two year average supports the mortgage, you are priced exactly like a salaried borrower. No premium, no penalty for being self-employed.
Stated income. Insured business-for-self programs exist for owners whose filed income understates reality. You declare a reasonable income for your industry and volume, support it with business bank statements and contracts, and the insurer assesses plausibility. There are limits on how much you can borrow this way and the pricing is slightly different, but it stays within the prime world.
Alternative lenders. B lenders assess the business rather than the return. They will look at revenue, deposits, contracts and the industry itself. Rates are higher and there is usually a lender fee, and the arrangement is generally meant to be temporary while you build two years of stronger filed income. Our alternative lending page covers how those lenders think.
What to have ready
- Two years of complete T1 Generals, every schedule included
- The matching Notices of Assessment, which must show no balance owing
- Two years of business financial statements, prepared by your accountant
- Business registration, master business licence or articles of incorporation
- Six to twelve months of business bank statements
- Contracts or invoices demonstrating ongoing work, particularly if you are newer
Gather these before you apply rather than during. In our experience the delay on a self-employed file is almost never the lender. It is waiting on an accountant in March.
If you owe taxes
Lenders require proof your taxes are current before they fund, so arrears surface whether you mention them or not. Raising it yourself at the start costs you nothing and changes the shape of the conversation entirely.
Arrears are often solvable. Many alternative and private lenders will advance funds specifically to clear a CRA balance, because a cleared balance improves their own security position. What does not work is hoping it goes unnoticed three days before closing.
If you are planning ahead
If a purchase is two years out, there is a conversation worth having with your accountant now. Declaring somewhat more income for two years costs you tax and may save you far more in mortgage terms, or it may not be worth it at all. It depends on the numbers, and it is the sort of thing best decided deliberately rather than discovered late.
Start with a pre-approval conversation so you know which of the three routes your file sits on today, and what would need to change to move it.
How much income does this mortgage need?
Work backwards from the mortgage you want to the income a lender needs to see, which is the number that matters most on a self-employed file.
Estimates only, not a rate offer or an approval. Approvals are OAC. See every calculator.
Common questions
How long do I need to be self-employed to get a mortgage?
Most lenders want two years of filed returns in the same line of work. Some will consider less where you have a long track record in the same field as an employee, or where the business took over an existing book of clients. Under two years narrows your options rather than ending them.
Which income do lenders actually use?
Usually the two year average of your net income after expenses, taken from your Notices of Assessment. Some lenders will gross that up to account for the fact that business owners write off legitimately. Others look at the business financials and add back items that are not true cash expenses, such as depreciation or a home office.
Can I get a mortgage if I write off aggressively?
Yes, and it is one of the most common reasons business owners come to us. Good tax planning and good mortgage planning pull in opposite directions. The answer is usually an alternative lender that assesses the business rather than the tax return, or a stated income program if your file fits one.
What if I owe money to the Canada Revenue Agency?
Tell us at the start. Lenders find out, because they require proof that your taxes are current before funding. Arrears do not automatically stop a mortgage, and in many cases the mortgage is how the arrears get cleared, but it must be handled openly from day one.
Will I pay a higher rate?
Not necessarily. If your filed income supports the mortgage on a prime lender basis, you are priced like anyone else. The premium only appears when the file moves to an alternative lender, and even then it is often temporary while you build two years of stronger returns.
What documents should I prepare?
Two years of T1 Generals with all schedules, the matching Notices of Assessment, two years of business financial statements, your business registration or articles of incorporation, and recent business bank statements. Having these ready before you apply is the single biggest thing you can do to speed the file up.