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Self-Employed? How to Secure the Best Mortgage Rates
October 24, 2024 | Posted by: Tim Belanger
Securing a mortgage when you’re self-employed can feel like a challenge, but it’s not impossible. With the right preparation, you can find a mortgage with competitive rates, just like anyone else. This guide will show you how to get the best mortgage rates for self-employed borrowers and walk you through what lenders look for when approving home loans.
How to Secure the Best Mortgage Rates for Self-Employed Borrowers
Here are some tips to help you secure the best mortgage rates as a self-employed borrower:
1. Organize Your Financial Documents
Lenders need to see proof of income for the self-employed, so it's important to have the right documents ready. This includes:
- Tax returns for mortgage applications (usually the last two years)
- Notice of Assessment (NOA) from the Canada Revenue Agency (CRA)
- Bank statements to show steady deposits from your business
These documents help prove your business income and give the lender confidence that you can manage monthly mortgage payments. Keep in mind that variable income is common for self-employed borrowers, so showing consistent income over time is crucial.
2. Keep Your Debt-to-Income Ratio (DTI) Low
Your debt-to-income ratio (DTI) is a key factor in getting a mortgage. This ratio compares your monthly debt payments to your income. To secure the best mortgage rates, aim to keep your DTI low by paying down existing debts like credit cards, car loans, or personal loans before applying for a mortgage.
If you’re looking for ways to calculate your budget, check out our guide on Navigate Mortgage Pre-Approval to understand how much you might be able to afford.
3. Save for a Larger Down Payment
The larger your down payment, the less risky you appear to lenders. If you can save more than 20%, you’ll avoid paying self-employed mortgage insurance. A larger down payment can also help you qualify for better mortgage rates and increase your chances of approval.
For self-employed borrowers, having a significant down payment shows lenders that you have financial stability, which may help you secure lower interest rates. Learn more about this process in our post on what is a High Ratio Mortgage.
4. Improve Your Credit Score
A strong credit score is essential for securing the best mortgage rates for self-employed borrowers. Check your credit report and take steps to improve it by paying bills on time, reducing credit card balances, and avoiding new debt before applying for a mortgage.
If you’re unsure about your current credit standing, see how Canada Trust Mortgage Company can help with financing options tailored for self-employed borrowers.
5. Consider Alternative Lenders
If traditional lenders like banks are hesitant to approve your mortgage, don’t worry. There are alternative lenders or B-lenders that specialize in helping borrowers with non-traditional income, like self-employed individuals. These lenders may have more flexible requirements but could come with slightly higher interest rates.
Working with a mortgage broker can help connect you with lenders who are more open to self-employed borrowers. Brokers understand how to navigate the process and can help you find competitive rates, especially when looking for Investment Property Mortgages.
6. Show Stability in Your Business
Lenders like to see that your business is steady and profitable. If you’ve been self-employed for at least two years and can show consistent or growing income, you’ll be in a stronger position to secure a mortgage. Be prepared to provide extra documentation, such as business financial statements, to prove the stability of your income.
7. Compare Fixed-Rate and Variable-Rate Mortgages
Decide whether you want a fixed-rate mortgage or a variable-rate mortgage. A fixed-rate mortgage locks in your interest rate for a set period, giving you predictable payments. A variable-rate mortgage can change based on market conditions, which could lower your payments if rates go down, but they could also rise.
If you’re unsure about which option is best, our team at Belanger Mortgages can guide you through the pros and cons of each, and we’ll help you secure the right mortgage type for your situation. Stay updated on current mortgage rates in Ottawa to make sure you get the best rate possible.
Also check out our comprehensive Mortgage Solutions guide for Canadiansso that you get all the information that you need to sort out your mortgage solutions.
What Do Lenders Look for in Self-Employed Borrowers?
Lenders assess self-employed home loan options by focusing on several key factors:
- Proof of income: Can you show consistent business income over time?
- Debt-to-income ratio: How much of your monthly income goes toward debt?
- Credit score: Are you financially responsible and able to handle a mortgage?
By focusing on these areas, you can improve your chances of securing a favorable mortgage.
Take the Next Step with Belanger Mortgages
As a self-employed individual, securing a mortgage with great rates is possible when you’re well-prepared. By gathering the right documents, improving your credit score, and working with a mortgage broker, you can find a mortgage that fits your needs.
Ready to take the next step? Belanger Mortgages is here to guide you through the process, whether you're looking for competitive rates or expert advice on how to navigate the mortgage market as a self-employed borrower. Contact us today to learn more and get started with best mortgage company in Canada!
