Self-Employed Mortgages

Self-employed borrowers in Ontario are declined for a paperwork reason, not an affordability reason. An incorporated contractor who nets $210,000 through the corporation and pays himself $68,000 in salary looks like a $68,000 borrower to an A-lender adjudicator reading Line 15000 of a T1 General. The lending file has to be rebuilt so the adjudicator sees the actual cash flow: T1s plus the T2 and financial statements, shareholder loan and dividend history, an accountant's letter, and add-backs for the expenses that reduce taxable income without reducing spendable income — capital cost allowance, home office, vehicle, and one-time or non-recurring costs.

Which lender tier you belong in depends on how you file, not on how much you make. Two years of filed T1s with reasonable declared income and a clean beacon keeps you at A pricing, sometimes with a stated-income insured program. One year of filings, heavy write-downs, or a recent incorporation usually means a B lender at a modest premium plus a lender fee. Unfiled returns, arrears with CRA, or income that only exists in bank deposits routes to alternative and private lenders, where the deal is priced off equity and structured as a bridge until your filings catch up.

The single highest-leverage thing a self-employed borrower can do is plan the tax year before the mortgage year. Two consecutive years of slightly higher declared income — or a properly documented dividend schedule — can move a file from private pricing to B pricing to A pricing, and the difference on a $700,000 mortgage runs into tens of thousands of dollars over a term. We routinely work backwards from a purchase date with a client's accountant so the filings that hit CRA in the spring are the filings the lender needs.