There is a conversation that happens in this office almost every week. A business owner sits down, describes a company doing $600,000 a year, and then explains that a bank told them they qualify for a mortgage of about $310,000. They assume something went wrong in the application. Nothing did.
The gap that causes it
Your accountant is measured on one thing: reducing your taxable income legally. Vehicle costs, home office, phone, meals, equipment, professional fees, capital cost allowance. Done properly, a business generating $600,000 in revenue might report $70,000 in net income on line 15000.
A prime lender qualifies you on line 15000. Not on revenue, not on deposits, not on what your business could pay you if it had to. That is why the mortgage number comes back so much smaller than expected. You are not being penalised for being self-employed. You are being assessed on the number you asked your accountant to make small.
Who counts as self-employed
Lenders treat you as self-employed if you are a sole proprietor, a partner, or if you own 25% or more of a corporation. Commission-only earners are assessed similarly. If you own less than 25% of a company that pays you a salary and issues you a T4, most lenders will treat you as an employee, which is a considerably easier file.
Add-backs, and which ones actually count
Lenders that understand business income will add certain expenses back to your net income, because those expenses did not reduce the cash available to you. The ones most commonly accepted are capital cost allowance, business-use-of-home, the non-cash portion of vehicle expenses, one-time or non-recurring costs, and amortisation or depreciation.
Which add-backs a given lender accepts varies, and this is where a broker earns their keep. The same tax return can produce meaningfully different qualifying income depending on which lender reads it. Some also apply a gross-up, commonly 15%, to declared self-employed income to reflect the tax already paid on it.
The documents to gather now
Self-employed files are decided on paperwork. Getting this together before you start saves weeks.
- Two years of T1 Generals with every schedule attached, not just the summary pages
- Two years of Notices of Assessment from CRA
- Two years of business financial statements, or T2 returns if incorporated
- Six to twelve months of business bank statements
- Articles of incorporation, master business licence or HST registration
- A statement of account from CRA confirming personal and business taxes are current
- Contracts, invoices or a client list confirming the business is operating now, not just historically
The CRA statement matters more than most people expect. Outstanding tax debt will stop a mortgage file at almost every lender, because CRA can register a lien ahead of the mortgage.
If you have been self-employed less than two years
Two years of filings is the threshold that opens the widest lender list. Under two years is still workable, and the compensating factors are predictable: a track record in the same field before going independent, strong credit, a larger down payment, and consistent business deposits you can show. Alternative lenders handle these files routinely.
Alternative lending, and how to use it properly
When prime lenders will not fit, alternative lenders assess the file differently. Some use twelve months of business bank statements and work from average deposits. Some use a stated income approach supported by evidence the income is reasonable for the industry and the length of time in business.
The cost is a higher rate and often a lender fee of around 1%. That is the honest trade. What makes it worth it is treating it as a term, not a destination.
A good alternative file has a written exit built in from day one. Two clean years of filings, taxes current, credit maintained, and a target date to move to a prime lender at renewal. If nobody has set that plan out for you, the file is only half done.
Two things worth discussing with your accountant
If a mortgage is coming in the next two or three years, there is a decision to make. Writing off less income means paying more tax now and qualifying for more mortgage later. Writing off more means the reverse. There is no universally right answer, but it should be a decision made on purpose rather than discovered at the application.
The second is timing. Lenders want the two most recent years. Filing late, or filing an unusually weak year immediately before applying, changes the picture. Coordinating your filing schedule with your purchase timeline is straightforward once someone points it out.
What down payment to plan for
Insured self-employed programs can go as low as 10% down in some cases, with restrictions. Alternative lenders generally want 20% or more, and 25% to 35% opens noticeably better pricing. Larger down payments also reduce how much the income question matters, because the lender's exposure falls.
The short version
Being self-employed does not disqualify you. It means your file needs to be built rather than submitted. The lender needs to be shown what your business actually produces, in a format their underwriting accepts, with documentation that supports every number. Most declines happen because that work was never done, not because the borrower could not afford the mortgage.