Many self-employed borrowers run into the same issue: the business is doing well, but because they deduct expenses at tax time, their "declared income" looks low — and the mortgage amount the bank calculates falls far short. This article covers the paths available to self-employed borrowers and how to improve approval odds.
Two Main Paths for Self-Employed Borrowers
Path 1: Declared Income (A-Lenders)
Traditional banks and some A-lenders look primarily at your declared income, typically requiring:
- Last 2 years of T1 General
- Last 2 years of NOA (Notice of Assessment)
- Company financial statements (if incorporated)
- Business registration documents
Advantages: usually lower rates. Disadvantages: if declared income is low, the borrowing amount may be limited.
Path 2: Stated Income Programs (B-Lenders)
Some B-lenders offer stated income programs that estimate income based on business revenue, bank deposits, or industry averages, rather than relying solely on declared income. Typically requiring:
- Business registration or licence
- Last 6–12 months of business bank statements
- Accountant's letter or financial statements
- HST filings (if applicable)
Advantages: more flexible income recognition. Disadvantages: rates are usually higher than A-lenders, and down payment requirements may be higher.
Using Retained Earnings and Dividends to Support Income
If your company has retained earnings or you receive dividends, these can supplement your income documentation:
- Retained earnings: some lenders allow a percentage of retained earnings to be counted as personal income
- Dividend income: provide T5 slips or corporate dividend records
- Salary + dividend combination: if you receive both, they may be combined
Lenders recognize retained earnings and dividends differently. Confirm in advance with your mortgage broker.
Practical Tips to Improve Approval Odds
1. Plan declared income ahead of time
If you plan to apply for a mortgage in the next 1–2 years, discuss with your accountant in advance about adjusting declared income within legal limits, to avoid excessive deductions limiting your borrowing capacity.
2. Maintain stable business bank statements
Stable business revenue and bank statements are the core evidence for stated income programs. Avoid unusual large deposits and withdrawals, and keep accounts active.
3. Prepare complete documents
Self-employed mortgage applications require more documentation than employed borrowers. Prepare T1, NOA, financial statements, business registration, bank statements, and HST records in advance to speed up approval.
4. Increase your down payment
The higher the down payment, the lower the lender's risk, and the higher the approval odds. B-lenders typically require 20%–35% down.
5. Maintain good credit
Credit score matters especially for self-employed borrowers. Maintain a good repayment history and avoid opening new credit cards or applying for other loans before your mortgage application.
6. Consider a co-signer
If income recognition is difficult, consider adding a co-signer with stable income to improve overall borrowing capacity.
Frequently Asked Questions
Q: Can I apply if I've been self-employed for less than 2 years?
Yes, but options are limited. Some B-lenders accept applicants self-employed for 1+ years, or assess based on prior employment income plus current business income.
Q: Can I get a mortgage with zero declared income?
Traditional A-lenders generally cannot approve with zero declared income. Some B-lenders or private lenders may offer stated income or asset-based solutions.
Q: How does applying as a corporation differ from sole proprietor?
Corporations require additional financial statements, business registration, and corporate bank statements. Sole proprietors primarily rely on personal T1 and business cash flow.
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