Can self-employed people get mortgages?

Yes. Self-employed borrowers qualify using two years of personal tax returns (T1 Generals), notices of assessment, and business financial statements. Lenders average net income over those two years, add back non-cash deductions like depreciation, and apply the federal stress test at the qualifying rate. Down-payment requirements start at five percent for insured purchases, twenty percent for conventional, and thirty-five percent for stated-income programs where documentation is limited.

How lenders calculate self-employed income

Most prime lenders use a two-year average of line 15000 net income from your T1 Generals, then add back allowable deductions such as capital cost allowance, motor-vehicle expenses, and home-office costs that reduce taxable income but not actual cash flow. If the most recent year is lower than the prior year, the lower figure often governs. We request both years of notices of assessment up front so there are no surprises at underwriting.

Corporation owners drawing salary and dividends need T4 slips, dividend registers, and two years of corporate financial statements. Lenders typically use personal taxable income (salary plus taxable dividends) rather than retained earnings inside the company. If you left money in the corporation for legitimate business reasons, we can sometimes present a business-for-self add-back package to a lender who accepts it.

Documentation checklist we review before submitting

Two years of T1 Generals and notices of assessment, two years of business financial statements if incorporated, current-year interim statements if past the fiscal midpoint, articles of incorporation and a business licence or GST/HST registration to confirm the business exists, and six months of business and personal bank statements showing revenue deposits matching reported income. Missing any of these delays the file; we collect them at pre-approval so the offer goes in clean.

For borrowers with less than two years of self-employment history, some lenders consider prior employment in the same industry as continuity. A chartered accountant letter confirming the business is viable and income is stable can strengthen a borderline file. We also verify that source-of-down-payment funds have been in your account for at least ninety days or can be documented as a gift from immediate family.

Down-payment tiers and mortgage insurance

Five percent down is available with default insurance (CMHC, Sagen, or Canada Guaranty) if the purchase price is below the insurance cap and your qualified income supports the payment. Premiums are added to the mortgage balance. At twenty percent down the loan becomes conventional — no insurance premium, but the lender’s internal qualifying ratios apply. Thirty-five percent down opens stated-income or alt-documentation programs where the lender relies more on net worth and credit strength than on fully verified income.

Self-employed borrowers often carry higher revolving balances for business operations. We run a soft credit pull early and, if utilization is high, map a pay-down plan before the hard inquiry. Keeping utilization below fifty percent on each trade line and paying trade accounts on time preserves the beacon score that determines which lender tier we can access.

Stated-income and alternative programs

Stated-income programs let you declare a reasonable income for your industry without full tax-return verification, but they require at least thirty-five percent down, strong credit (typically 680+), and six months of bank statements showing business cash flow. Rates and lender fees are higher than prime. We use these sparingly — usually when a client has significant write-offs that make taxable income artificially low but actual cash flow is solid.

Private lenders focus on equity and exit strategy rather than income verification. They fill gaps when a borrower is between tax-filing years, has a recent credit event, or needs a short-term bridge. Terms are twelve to twenty-four months, interest-only, with a fee. We only recommend private money when a clear path to prime refinancing exists at maturity. Our private mortgage Richmond BC page outlines typical scenarios.

Pre-approval versus rate hold

A full pre-approval means we have collected documents, run credit, calculated qualified income, and submitted the file to a lender for an underwriting decision subject only to property appraisal. A rate hold without document review is not a pre-approval. We encourage self-employed clients to complete the document-heavy work up front so the only variable left is the property. That puts you in the same negotiating position as a salaried buyer.

If you are incorporated, we also confirm the corporation is in good standing with the BC Registry and that you have authority to pledge personal assets. A quick search prevents last-minute delays. For first-time buyers who are self-employed, the same rules apply — see our first-time home buyer mortgage Richmond BC guide for the property transfer tax exemption and other programs that stack with self-employed qualification.

Common pitfalls we see

Filing taxes late or not filing at all — lenders need the notice of assessment, not just the return. Writing off personal expenses through the business aggressively — the add-back must be reasonable and documented. Switching from sole proprietorship to incorporation mid-stream — lenders want continuity of income. Taking on new vehicle leases or credit cards during the process — new debt changes debt-service ratios. We flag these early and adjust the plan before an underwriter sees the file.

Another frequent issue: large, unexplained deposits in bank statements. Lenders require a paper trail for any non-payroll deposit over a few thousand dollars. If the funds are from a shareholder loan, a gift, or a sale of assets, we prepare the explanation letter and supporting documents before the underwriter asks. Preparation keeps the timeline tight.

Do I need two full years of tax returns?

Most prime lenders require two years of filed returns and notices of assessment. If you have only one year, some lenders will consider prior employment income in the same field, or we can explore alt-documentation programs with a larger down payment.

Can I use business revenue instead of personal taxable income?

Prime lenders use personal taxable income (line 15000) with add-backs. Stated-income or private lenders may consider business bank-statement cash flow, but they require thirty-five percent down and charge higher fees. We match the program to your actual documentation.

What if my most recent year shows lower income?

Lenders typically use the lower of the two years or the two-year average if the trend is declining. A letter from your accountant explaining the dip (for example, a one-time capital investment) can help, but the conservative figure usually governs qualifying.

Does being self-employed affect the stress test?

The stress test applies to every insured and conventional mortgage regardless of employment type. You qualify at the greater of the contract rate plus two percent or the Bank of Canada benchmark. Your verified self-employed income must support that payment.

Ready to see what you qualify for? Call 778-991-3289 or contact us to start your pre-approval with Jensen Tam. We’ll gather the right documents up front so you can shop with confidence.