Self-employed applicants typically have a harder time proving their income. The benefits of writing many expenses down are great, yes, but at the end of the day we are sometimes able to “verify” only a nominal amount of what we earned. That is why lenders and insurers have created a “stated income” program for those finding themselves in this very position. The stated income portion (that is submitted to a lender) must be reasonable based on the industry, length of operation, and type of business.
Business-for-self applicants are required to demonstrate at least two full years of operation of their business. Currently, the minimum requirement for down payment is 5% for any purchase, and if refinancing - you must leave at least 15% equity in your home (85% Loan-to-value). The Business-for-self applicant must provide the following for documentation:
Documentation/information requirements:
Sole Proprietorship
A one-owner operation where the owner directs all the activities of the business, assumes all authorities and obligations, and is liable for its business debts. The sole proprietor income is reported to revenue Canada on the standard tax return (T1 General) together with Revenue Canada's required statement of business or professional activities.
Documentation requirements - Any one of the following must confirm at least two (2) years business-for-self tenure:
Business License
GST/HST Return Summary
T1 Generals with statement of business activities attached for a minimum 2 years prepared by an arm's length third-party
Audited Financial Statements for the last 2 years, prepared and signed by a CA
Plus a recent Notice of Assessment or a signed affidavit by the borrower(s) to confirm no income tax arrears (Note: in the province of Quebec, both federal and provincial NOA's will be required)
Partnerships
Partnerships are businesses owned by two or more individuals who share the profits or losses of the business operation. The partnership income is reported to Revenue Canada on the standard tax report (T1 General) together with Revenue Canada's required statement of business or professional activities, which reflects the percentage of the NET income or loss for each partner of the enterprise.
Documentation requirements - Any one of the following must confirm at least two (2) years business-for-self tenure:
Business License
GST/HST Return Summary
T1 Generals with statement of business activities attached for a minimum 2 years prepared by an arm's length third-party
Audited Financial Statements for the last 2 years, prepared and signed by a CA
Plus a recent Notice of Assessment or a signed affidavit by the borrower(s) to confirm no income tax arrears (Note: in the province of Quebec, both federal and provincial NOA's will be required)
Corporations
A limited company or corporation is a legal entity, separate from the persons (all shareholders) who own it. The business can own assets, enter into contracts and conduct business transactions in its own capacity. The company is called limited because the liability of the shareholders is limited to their investment. All provincial Corporations must obtain articles of incorporation from the province in which they are registered or may be federally incorporated. The applicant's personal income will be reported by T4 from the corporation.
Documentation requirements - Any one of the following must confirm at least two (2) years business-for-self tenure:
Articles of incorporation
Audited Financial Statements for the last 2 years, prepared and signed by a CA
Plus a recent Notice of Assessment or a signed affidavit by the borrower(s) to confirm no income tax arrears (Note: in the province of Quebec, both federal and provincial NOA's will be required)
Decent credit is mandatory through this program, and a beacon score of minimum 700 is acceptable only to qualify for the maximum 95% Loan to Value. |
