Since 2008, it’s been tougher and tougher to qualify for a mortgage in Canada. The amortization period now capped at 25 years and many first-time homebuyers are having to save more before they can get into the market and purchase a home.
Canadians are turning to self-employment as a way to boost a struggling job market, they also need to be able to prove how much they make.
Verifying your income
Self-employment can make proving your income that much more difficult. Salaried employees applying for a mortgage can prove their income through T4 slips and a few recent paystubs. For the self-employed, it’s a bit more difficult.
Whether you’re a small or large business your lender must qualify you on the next best thing: your stated income. Stated income what you could reasonably earn in the industry you are in. The following documents may be required:
- Your income tax returns and notices of assessment for the previous two years
- Financial statements for your business
- Proof that your HST and/or GST is paid in full
Can you afford it….
Your income is stated, the lender will qualify you for a mortgage based on two ratios.
#1 your Gross Debt Service (GDS) ratio
#2 your Total Debt Service (TDS) ratio
Your debt service ratios calculate how much you can afford.