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Higher Home Purchase Price with Self-Employed Income

Are you self-employed and wondering how you can afford to spend more on a home? We’ll look at how self-employed individuals can value their income to up their maximum home purchase price.

Self Employed income

Qualifying the Traditional Way

If you’re self-employed, you may wonder how a lender calculates your income. Unlike a salaried employee, you can’t just provide a letter of employment and the most recent payslip. The good news is that it’s still possible to qualify for a mortgage when you are self-employed. You want to understand how.

When you’re self-employed, lenders take a two-year average of your income based on the last two years of filed taxes. This is helpful when your income is increasing year to year.

If your business is incorporated and you pay yourself a salary, you’ll take the two-year average as described above. But did you know that you can increase your income by 15 percent if you run your business as a sole proprietorship? This is to account for the many write-offs self-employed individuals can make. This can help you qualify to spend that much more on a property.

If you’re in an industry that has been negatively affected by COVID, such as the film and arts industries, lenders may allow you to use a three-year average of your income instead of a two-year average. This can help boost your maximum home purchase price, especially if your income was higher in the year before COVID.

Qualifying with Stated Income

The scenarios described above are fine and dandy, but what if you don’t have two years of tax returns because your business is newer? What do you do in that situation? The good news is that there’s a way for you to qualify in that situation as well. You can qualify with something called stated income.

Many lenders are ok with as little as three or six months of bank statements. You can then state an income based on reasonable bank statements. A certain percentage of your income will have to go to expenses based on what is reasonable in your industry. And voila! You have the income you can use for mortgage qualification purposes. This is likely a lot more than you would be able to spend if you didn’t use stated income.

How the Canadian Mortgage App Can Help

With the Canadian Mortgage App, you can find out how much more you could afford.

Using the Purchase Calculator, you can enter your business’s income using income that you think is reasonable to state to see how much more you’d qualify to spend on a home.

What are you waiting for? Download the Canadian Mortgage App today to try it out.

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