A self-employed mortgage guide: qualifying when you’re self-employed gives real steps for people in Toronto who run their own business or freelance.
Self-employed people contend with greater documentation and lender scrutiny than those with W-2 income. Lenders are looking for consistent income, looking at tax returns and looking for evidence that we can pay our bills.
Our team understands the nitty gritty of what banks here are looking for. We assist in organizing documents and provide well-reasoned, reliable guidance for a seamless, worry-free transaction.
Self-Employed Mortgage: What’s the Deal?
Getting a self employed mortgage in Toronto is a whole other ballpark. We don’t just understand what the obstacles are, we understand it because we deal with them every single day. Unlike our salaried counterparts, we don’t have a pay stub that remains constant.
Rather, our income is more likely to fluctuate. Lenders need evidence—consistently, obviously, beyond doubt evidence—that we’re able to foot the bill. So, instead, they typically request two or three years of tax returns, business statements and personal financial statements. That’s a fair bit more paperwork than just a T4 slip.
Why It’s Tougher for Us
Our income can’t predictably be counted on month after month. This is what makes banks so skittish. They expect a straightforward job letter, but in our case, that’s not feasible.
Since most lenders consider you self-employed as a higher risk, they go over everything with a fine-tooth comb. If our income fluctuates annually, or if our business is relatively young, we may need to search for subprime lenders. This can result in some cases with interest rates from 7 to 18%.
Down payments may vary widely, from 5% all the way to 30%, depending on the lender’s risk appetite.
Your Income: A Different Beast
We work in unpredictable cash flow. Some months are high tide, some months are low tide. Lenders want to see consistent income, not merely large increases.
A consistent two or three year income history goes a long way. If we can show our business is solid, with clean records and good years behind us, our odds go up. Here’s where good record-keeping comes in handy.
Lender Jitters: Understanding Why
One of the biggest concerns banks have is risk—especially if there’s an economic downturn. They scrutinize our credit score and debt service ratio far more than with a person who draws a salary.
A higher credit score can go a long way in calming those nerves. In instances like this, a larger down payment and a more extensive paper trail are enough to swing the decision our way.
Prove Your Hustle: Income Verification
Getting a mortgage when you work for yourself in the GTA requires more work than someone with a regular job. Understand lenders need additional verification before they declare your income as consistent. Our mission is to make sure you have each document queued up, so your application moves quickly and seamlessly.
1. Your Essential Document Checklist
Here’s what you’ll need:
- Personal tax returns (T1 Generals, last two years at least)
- Notices of Assessment (NOAs, two to three years)
- Business financial statements (audited or accountant-prepared)
- Bank statements (personal and business, six to twelve months)
- Articles of incorporation or business license (if applicable)
- Business licenses, contracts, or invoices to demonstrate continuous business operations.
Each piece of documentation tells a part of your narrative. Tax returns and NOAs provide proof of your reported income. Financial statements give us the overall view of your business. Bank statements verify your income and show cash flow. A history of contracts and invoices indicates that you’re in business.
2. Making Sense of Your NOAs
NOAs are nuggets of gold for lenders. As such, they depict what you take home after expenses, not what you made before them. Providing two or three years’ worth of NOAs lets lenders know that your income isn’t a fluke.
They want to see increasing or at least consistent figures.
3. Prove Your Business is Thriving
Financial statements demonstrate the overall health of your business operations. Sales are not enough; lenders want to see profits. Put the focus on growth trends in your figures.
Active contracts or a history of recurring invoices provide an extra layer of trust.
4. Beyond Tax Slips: Other Proof
Not all income easily fits onto a tax slip. Contracts, invoices, and evidence of regular deposits provide proof of consistent work over time.
These provide additional support to what your tax filings indicate.
5. Show Consistent Cash Flow
Consistent cash flow through stable monthly deposits goes a long way. First and foremost, lenders want to see consistent trends, rather than erratic fluctuations.
Neat, clear bank statements will help your argument go a long way.
Boost Your Approval Odds
Qualifying for a mortgage when self-employed in Toronto requires additional preparation, but we help clients get approved every day. If you take the right steps, the process can be much smoother and your approval odds greatly improved. Here’s how we help our clients stand out:
- Keep credit scores up—aim for at least 650.
- Save up a down payment—10% is ok, 20% is better.
- Lower debt—keep GDS under 35% and TDS under 42%.
- Prove consistency of income—at least two years of self-employment income, with consistent or increasing income.
- Keep business and personal costs apart.
- Collect all the right paperwork: tax returns, business statements, and more.
- Work with a pro accountant to check your numbers.
Polish That Credit Score
We’ve been saying it forever, but our clients tell us—they hear it here first—pay bills on time and keep credit balances low. Just one or two late payments can significantly lower your score. Lenders want to know that you are good at managing debt.
If your score is 650 or higher, you have significantly more choices available to you—particularly if you can make a substantial down payment. A high credit score can compensate for some minor income blips, too.
Beef Up Your Down Payment
The larger your down payment, the better your position. While most lenders are comfortable with at least 10%, 20% or more can make a big difference. It demonstrates your commitment and significantly reduces your risk.
Begin saving as soon as possible—establish some auto-transfers or cut expenses at home whenever possible. Others rely on business profits or gifts from family members.
Get Your Business Finances in Order
Well-organized documentation goes a long way to earn the confidence of potential lenders. We recommend having separate business and personal accounts. Engage an accountant early to get your books in order.
Keep your tax returns, bank statements, and incorporation documents at hand. Strong documentation supports your argument far better.
Your Industry Matters to Lenders
Your Industry Matters to Lenders. If your industry is technology, healthcare, or skilled trades, it certainly benefits you to demonstrate a track record of consistent growth.
Customize your documentation—demonstrate positive industry trends or new, long-term contracts if available. This demonstrates your business has staying power.
Finding Your Lender Match
For self-employed people in Toronto, finding your lender match determines your entire mortgage experience. These requirements are determined by each lender individually. Others focus on serving business owners. Some continue to avoid flexibility like it’s a hot potato. We understand that the options may feel like they are too much to handle. Here’s how we score lenders.
| Lender Type | Credit Score Needed | Rate Range | Docs Needed | Perks | Common Drawbacks |
| A-Lender | 600+ | Low | 2-3 years of NOA, T1, accountant-prepared returns | Best rates, widest options | Tough rules, strict GDS/TDS |
| B-Lender | 550+ | Medium | 2 years of NOA, flexible docs | Easier approval, flexible | Higher rates, extra fees |
| Private Lender | 500+ (flexible) | 7-18% | Minimal, case-by-case | Fast, less paperwork | High rates, short terms |
A-Lenders: The Main Street Banks
A-lenders are large banks and credit unions. They prefer no black marks on a prospective borrower’s credit report—600 or above—and consistent income. They look at 2-3 years of NOAs and accountant-prepared tax returns.
When you work with them, you receive low interest rates and long repayment terms. They maintain a tight set of regulations. Debt ratios (39% GDS, 44% TDS) need to fit, and income is averaged over a two-year period. One missed payment or error on your credit report is enough to throw you for a loop.
B-Lenders: Flexible Alternatives
B-lenders serve an important purpose for those with strong, but not perfect, files. Their rates are higher, but they accept broader sources of income or unique circumstances. Self-employed people who take many deductions on their taxes usually have better luck with B-lenders.
Nonetheless, fees can be substantial, so understanding their expectations from the start is essential.
Private Lenders: A Niche Option
Private lenders move quickly. They fill the gaps when banks decline, such as needing more time after starting a new business or having thin or bad credit. For-profit lenders’ rates range from 7% to 18%.
Private lenders require less documentation as well, though these are more expensive, short-term loans. Read the fine print before you sign.
How Lenders See Your Business
Lenders are looking for evidence that your business is viable. They consider your bottom line, past performance, and future vision. Come with a solid business plan and demonstrate two years of consistent profits.
Having good credit and low debt certainly goes a long way. A mortgage broker works to find the best fit and helps you understand what each lender is looking for.
Stated Income: The Lowdown
Stated income loans were popular among Toronto’s self-employed, in particular when income declarations did not accurately reflect true income. The tide has turned. The real “no docs” loans from prior to 2008 are gone.
Lenders are smarter today, offering clearer, more modern solutions to allow business owners and freelancers to get approved.
Key features of stated income loans include:
- Simple income reporting—few pay stubs or slips needed
- Fast approval using stated, not verified, income
- Higher interest rates and fees
- Focus on credit score and bank balances
- Often require more down payment
Those of us who are self-employed understand that income is not necessarily predictable. Stated income loans can be attractive to people with more irregular cash flow, such as realtors, contractors, or consultants.
They’re useful when tax write-offs artificially depress reported income. These loans are not without risk. One reason lenders jack up costs is to compensate for reduced documentation.
Further, in the case of income being overstated, the borrower is taking on more risk.
What is a Stated Income Loan?
With a stated income loan, we’re able to just state our income to the lender without providing all of the traditional documentation. Instead of T4s, we would provide bank statements or profit and loss statements.
Currently, the majority of lenders in Toronto are asking for 12–24 months bank statements. They still require a credit score of 580–620 or higher, as well as tax returns.
Truth hard—making too much money on paper means eventually they will default and be exposed to legal repercussions.
When Stated Income Makes Sense
These loans work great for individuals who make a living on commission, own seasonal businesses, or claim large tax deductions. They increase approval times as lenders bypass certain verifications.
It is important to consider the increased cost and repayment restrictions.
The Fine Print on Stated Income
The Fine Print on Stated Income Read all loan terms closely. Prepare for steep rates, increased fees, and rigid repayment.
Look out for balloon payments or prepayment penalties. Knowledge of each and every nuance allows us to avoid expensive unexpected costs.
Down Payments & Insurance Facts
Getting a mortgage when self-employed in Toronto comes with its own set of regulations. Down payment and insurance requirements influence what you can afford, how much you’ll pay, and your chances of getting approved. Here’s a quick look:
| Down Payment | Mortgage Default Insurance Needed? | Notes |
| 5%–19.99% | Yes | Opens doors, but comes with insurance fees. |
| 20% | Sometimes | Often no insurance, but some lenders want it. |
| 20–34.99% | Sometimes | A few lenders may still ask for insurance. |
| 35%+ | No | Lower risk, no insurance required. |
| Rental (not owner) | 20%+ | Always uninsured, tougher rules. |
With mortgage default insurance, this market segment can qualify with a minimum down payment of as low as 5%. This safety net does allow us to enter homes earlier, but it comes with increased fees.
When we put down 20% or more, we avoid the insurance cost altogether and receive lower risk rates. The greater the down payment, the better the terms and the more options the lender has. For investment properties it’s 20% down minimum—no exceptions.
CMHC: Your Self-Employed Ally?
The Canada Mortgage and Housing Corporation (CMHC) provides insurance that protects self-employed buyers. In order to qualify, we have to get dependable documentation of income, such as tax returns for the last two years.
Especially when we can provide less documentation or a limited business history, CMHC insurance increases our chances of being approved.
How Much Can You Borrow?
Like other borrowers, lenders consider income, credit, debts, and business stability. They look at our debt-to-income ratio—so the less we owe, the better.
Clean, well documented finances, verifiable income, and a strong financial plan allow us to borrow more.
Self-Employed Down Payment Rules
We need to be able to prove where our down payment originated. At least 5% has to be our own money – not a loan.
We can accept the rest as a gift from family members, but we need to see clear documentation. Lower down payments come with additional insurance expenses.
