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What to consider when self-employed and getting a mortgage

Ask an Expert: Cait Holmes
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When and if you are self-employed and looking to apply for a mortgage in the near future, there are a few considerations to ensure your mortgage application has the best chance of being approved:

Think ahead
One primary benefit of being self-employed is the privilege of writing your income down. You enjoy less taxes because you get to write-off expenses, but you lose borrowing power.

It is important to be aware of this because you can either pay less tax or have more borrowing power. This is why it is important to think ahead so you can plan to write off fewer expenses in the two years leading up to the property purchase.

While you will pay more personal taxes for that period, your income will be higher, which will make it easier to qualify you for the mortgage amount you are seeking.

Use a certified accountant
When it comes to your income, it is very different for self-employed versus traditionally employed individuals who can simply get a letter from their employer or show pay stubs. With self-employed income, most lenders expect it to be submitted through a professional rather than doing it yourself. Make sure that you discuss with them what your goals are so they can set up your taxes properly for you.

Choose timing carefully
If you are leaving for an extended holiday within the two years before purchasing, your two-year average income may fluctuate. Plan your vacations and extended trips away with income in mind so you can utilize the most borrowing power available to you when shopping for a home.

Consider using stated income
If the income on your personal tax returns is not high enough, you have the option to state your income with some lenders. To utilize stated income, you will need to have been self-employed for two years.

Keep in mind, you may be required to provide additional documents such as bank statements that show consistent deposits as proof. Note: If you do not qualify with A lenders using stated income, don’t fret! There are Alt-A Lender as another options.

Cait Holmes is a mortgage broker in the qathet region.

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