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For self-employed professionals in Ontario, securing a mortgage can be more complex than it is for salaried employees. Traditional lenders often favor applicants with steady T4 income, making it challenging for business owners, freelancers, and contractors to qualify under standard lending guidelines. However, with the right approach and knowledge of the available mortgage solutions, business-for-self (BFS) clients can successfully navigate the home financing process. In this guide, we’ll explore mortgage options, qualification requirements, and essential tips for BFS borrowers looking to secure home financing in Ontario.
Understanding Business-for-Self Mortgages
A business-for-self mortgage is a financing solution designed for self-employed individuals who may not have traditional proof of income but still have the financial capacity to afford homeownership. Unlike salaried applicants who provide T4 slips and consistent pay stubs, BFS applicants often rely on alternative income verification methods, such as business bank statements, retained earnings, or stated income programs.
Since self-employed individuals typically deduct business expenses to reduce taxable income, their reported earnings on tax returns may appear lower than their actual income. This is why BFS mortgage programs take a more flexible approach when assessing an applicant’s ability to repay a loan.
Challenges Self-Employed Borrowers Face
Despite having strong financial stability, many self-employed Canadians face these common obstacles when applying for a mortgage:
- Lower Taxable Income: Business owners often write off expenses to lower taxable income, which can reduce borrowing power in the eyes of traditional lenders.
- Strict Income Verification: Many lenders require at least two years of tax returns (T1 Generals, Notice of Assessments) to prove income stability.
- Higher Down Payment Requirements: Some lenders may require a higher down payment compared to salaried applicants to offset perceived risk.
- Limited Access to Traditional Lenders: Big banks tend to have rigid lending criteria, making alternative lenders a more viable option for BFS borrowers.
Mortgage Options for Business-for-Self Clients
There are several mortgage solutions available for self-employed individuals in Ontario, including traditional, alternative, and private lending options.
1. Traditional Mortgage Programs
If you have a strong credit history and can provide proof of consistent income through your business financials, you may qualify for a traditional mortgage with an “A” lender (such as major banks and credit unions). Lenders will typically require:
- Two years of tax returns (T1 Generals and Notice of Assessments)
- Business financial statements
- Personal and business bank account statements
- Minimum down payment of 5% (for homes under $500,000)
2. Stated Income Programs
For BFS clients who have a healthy business but show lower taxable income on their tax returns, stated income programs offered by alternative lenders (B lenders) can be an excellent option. These programs allow borrowers to declare their true income based on business performance, backed by supporting documents such as:
- 12 months of business bank statements
- Proof of active business operations (business license, articles of incorporation, HST filings)
- A minimum down payment of 10%–20%
While interest rates on alternative mortgages may be slightly higher than traditional mortgages, they offer greater flexibility for self-employed individuals who may not qualify through conventional means.
3. Private Lending Solutions
For business owners with non-traditional income sources or those with credit challenges, private lenders provide short-term mortgage solutions. Private mortgage rates tend to be higher, and lender fees apply, but they can be a temporary solution to secure a property while improving financial standing for future refinancing with a lower-rate lender.
Key Considerations for BFS Mortgage Applicants
When applying for a mortgage as a self-employed individual, keep these key factors in mind:
1. Maintain Strong Credit
A high credit score increases your chances of securing better mortgage terms. Lenders use credit history to assess your risk level, so ensure you make timely payments on all debts and limit credit utilization.
2. Keep Business and Personal Finances Separate
Using a business bank account for business transactions and a personal account for personal expenses makes it easier to provide clear financial records when applying for a mortgage.
3. Work with a Mortgage Professional Specializing in BFS Mortgages
A mortgage broker with experience in BFS mortgages can help you navigate lender requirements, explore alternative financing solutions, and secure the best possible rates for your situation.
4. Consider a Larger Down Payment
A higher down payment reduces lender risk and can increase your chances of approval, especially when working with alternative lenders.
5. Be Prepared for Additional Costs
Beyond the down payment, business-for-self borrowers should factor in closing costs, including:
- Land Transfer Tax (LTT)
- Legal fees
- Home appraisal fees
- Lender and broker fees (for alternative or private lending options)
Final Thoughts
Securing a mortgage as a self-employed individual in Ontario requires careful planning and the right approach. While BFS clients may face additional hurdles, there are mortgage solutions tailored to their needs. By maintaining strong credit, keeping accurate financial records, and working with an experienced mortgage professional as my self, self-employed borrowers can successfully achieve homeownership.
If you're a self-employed individual looking for mortgage guidance, I’d be happy to help you explore your options and find the best solution for your unique financial situation. Let’s connect and make your homeownership dreams a reality!
Kat Brazier
Mortgage Agent L2, MPFG
416-464-6763
info@katbrazier.com