In a province celebrated for its entrepreneurial spirit, more and more Ontarians are choosing to be their own boss. From freelance creatives and skilled tradespeople to tech innovators and small business owners, the self-employed are a vital and growing part of the economy. But when it comes to one of life’s biggest financial milestones—buying a home—these same entrepreneurs often face unique and frustrating hurdles.

Securing a mortgage when you’re self-employed is entirely possible, but the process is different. Traditional lenders are structured to assess the steady, predictable paycheques of T4 employees. For business owners with fluctuating incomes and complex tax write-offs, proving your financial stability requires a different approach, more documentation, and a great deal of preparation.

The Core Challenge: Proving Your Income

The fundamental challenge for any self-employed mortgage applicant is proving a stable and sufficient income to the lender. While a salaried employee can simply produce a T4 slip and a letter of employment, a business owner’s income is not so straightforward.

Lenders are inherently risk-averse. They need to be confident that you will be able to make your mortgage payments consistently for the entire mortgage term. The problem is that many self-employed individuals work with their accountants to legally minimize their taxable income by claiming all eligible business expenses. This is smart for tax purposes but can be detrimental when applying for a mortgage.

When a lender looks at your tax returns, they don’t look at your gross revenue; they look at the net income figure after all expenses have been deducted (line 15000 on your personal tax return). If you’ve written your income down to a very low number, your mortgage application will be assessed based on that low number, drastically reducing your borrowing power.

The Standard Path: The “Two-Year Rule”

For self-employed individuals who can show strong, consistent net income on their tax returns, the path to a mortgage at an A-lender (like a major bank) is quite clear. You will generally need to provide:

  • Two to Three Years of Financial Statements: This includes detailed breakdowns of your business revenue and expenses.
  • Two to Three Years of Personal Tax Returns (T1 Generals): This shows the net income you have declared to the Canada Revenue Agency (CRA).
  • Two to Three Years of Notices of Assessment (NOA): Your NOA from the CRA confirms your declared income and shows that you do not have outstanding taxes owed.
  • Proof of Business Registration or Articles of Incorporation: To show that your business is legitimate and established.
  • Evidence of a Healthy Down Payment in Ontario: Lenders will want to see a strong down payment and proof that it did not come from borrowed funds.

The lender will typically average your net income from the last two years to determine the income figure they will use for their calculations. They want to see a stable or increasing income trend. A declining income is a major red flag and will make qualification very difficult.

The Alternative Path: “Stated Income” Mortgages

What if you’re a successful business owner, but your declared net income is too low to qualify for the mortgage you need? In this situation, you may need to explore a “stated income” or “low-doc” (low documentation) mortgage program.

These programs are specifically designed for self-employed borrowers. They allow you to “state” a higher income than what is on your tax returns, provided you can reasonably demonstrate that your business can support that income level. These are not “no-doc” loans; you still need to provide substantial proof of your business’s health. This can include:

  • 12+ months of business bank statements showing consistent and strong cash flow.
  • Business contracts and client lists.
  • Financial statements prepared by an accountant.
  • Proof of GST/HST registration and payments.

The Trade-Offs of Stated Income Loans:

Stated income programs offer a vital lifeline, but they come with trade-offs:

  • Higher Interest Rates: Because the lender is taking on more perceived risk, the interest rates on these loans are typically higher than on a standard mortgage.
  • Larger Down Payment Required: Lenders will often require a larger down payment, sometimes as much as 35%, to offset their risk.
  • Lender Fees: Some stated income products come with a lender fee, typically 1% of the loan amount.
  • Typically Offered by B-Lenders: While some A-lenders have limited programs, many of these products are offered by B-lenders (alternative lenders) and credit unions who specialize in this type of underwriting.

Steps to Success: Preparing for Your Application

If you are self-employed and plan to buy a home in the next few years, preparation is everything.

  1. Plan Your Taxes Strategically: Have a conversation with your accountant well in advance. While minimizing taxes is important, you may need to find a balance and declare a higher net income for the two years leading up to your mortgage application. The slightly higher tax bill could be the key that unlocks homeownership.
  2. Keep Meticulous Records: Maintain clean and organized financial statements, bank records, and tax filings. The more professional and detailed your documentation, the more confidence you will instill in a lender.
  3. Strengthen Your Credit Score: A high personal credit score is non-negotiable for a self-employed applicant. It shows the lender that even with a variable income, you are a responsible and reliable manager of debt.
  4. Save a Larger Down Payment: A substantial down payment reduces the lender’s risk and demonstrates your financial discipline. It is one of the most powerful tools in a self-employed person’s arsenal.
  5. Work with a Mortgage Broker: This is arguably the most important step. A good mortgage broker who specializes in working with self-employed clients will be your greatest asset. They have relationships with a wide range of A-lenders, B-lenders, and even private mortgage lenders. They know which institutions have the most favourable programs for entrepreneurs and can package your application in a way that highlights its strengths, saving you time, money, and immense frustration.

Getting a mortgage while self-employed in Ontario is not a test of your success, but a test of your preparation. It requires you to think like a lender, to document your financial life with precision, and to plan years in advance. While the path may have more paperwork and require more strategic thinking than it does for a salaried employee, the goal is absolutely achievable. By presenting a clear, professional, and compelling financial story, you can prove that your entrepreneurial spirit is built on a foundation of stability worthy of a mortgage.