Securing mortgage approval has been a common problem among self-employed individuals. It is common knowledge that lenders prefer long-term employment records to ensure consistent payments, over variable self-employed income. But it is not always impossible.
In Canada, the growing number of self-employed individuals is forcing lenders to adapt. They are continuously trying to find a way to meet their potential clients’ needs.
If you are a self-employed person considering a mortgage to finance your home purchase, you need to prove how financially stable and capable you are. It all starts with ensuring that you have financial strength. If a self-employed person can prove that they have a good income and pay all their bills on time, they have a high chance of successful mortgage approval.
Here are some mistakes you should avoid:
Mistake 1: Not Reporting All Your Income
Lenders rely primarily on your reported income when making their assessment. Your income will define how much money you can spend and borrow. If you only report a fraction of what you earn, lenders might assume that this is your full financial capacity. Therefore, whether you make cash, goods, or traded services, it would be best to report them all to your tax income report to show your actual worth.
Mistake 2: Overstating Earnings
Although reporting your income is recommended, overstating income also has its consequences. Usually, some claim additional income to improve their potential mortgage approval. However, before making claims like this, make sure that you have legal documents to support them. At the same time, these documents should pass the lender’s review.
Should your application get approved and your stated income does not match your actual income, it might be challenging for you to pay off your monthly mortgage. Not being able to pay your monthly mortgage could result in penalties or foreclosure.
Mistake 3: Concealing Debts
If you hide your debts, the lender would not have a clear picture of how much money you have. The debt to income ratio is an essential element in determining how much you can borrow. Anyone can still apply for a mortgage despite having debt, but lenders need to see how well you manage them. Borrowers who have debt usually find it challenging to pay off subsequent loans, and you need to prove your lenders wrong instead of hiding it from them.
Mistake 4: Avoiding Having Credit Cards or Loans
Why get credit cards if you do not want to have debts? Unfortunately, some people see credit cards and loans as traps instead of a potential asset that can prove your creditworthiness. Having a loan or credit card bill to pay every month and paying them on time shows how well you manage your finances and pay your bills. Having a credit card or another manageable loan could be a helpful tool for you to secure your mortgage.
If you plan to get a mortgage loan soon and are self-employed, make sure you avoid committing the mistakes listed above. Focus on what lenders prefer: a person who has good credit and income. If you can prove those and your capacity to pay back your mortgage, you can have a good chance of getting approval for the loan you want.
Also ensure you find a mortgage agent who can help you find the best offer that fits your unique situation. Ottawa Mortgage Services is an Ottawa-based mortgage agent that can help you find lenders that let self-employed Canadians with good records qualify for the lowest mortgage rates. Contact us to learn how we can help.