Self Employed

Let’s talk today about self-employed people and what the banks want to see from you in terms of income verification, to qualify for a mortgage.Banks most commonly want to see 2 years Notice of Assessments (NOAs) to prove that you, as a self-employed borrower are filing your income taxes, and are up to date (do not have any back taxes owing). They also of course want to see how much you are filing.

But what about someone who has been a plumber for the last 25 years, and one day finally decides to go out on his own? By going on on his own he is making a lot more money, but he’s only been self-employed for for a year and a half.

The Bank is looking for a proven track record, which is why they ask self-employed borrowers for 2 years history, so they can do an average and see a trend. So what do they do if you were employed and now you’re self employed and don’t have a 2 year history, how do they make the connection?

Well, there are some banks that are a little bit more flexible and will use a more common sense approach if you will. They will look at the newly self-employed borrower’s historical earnings as an employee. So long as you transitioned into self-employment within the same industry, doing the same type of work, these lenders will use an average of your income over those years, including your start up year as self-employed. So, in other words, they will take into account the employed earnings as well as the self-employed and do an average.

This is significant In the case of someone who has been self-employed for one year but has been doing the same type of work for the previous 25 years, for example. It’s a pretty safe bet that the person is moving to become self-employed because they stand to make a lot more money rather than continuing to collect a salary.

If you know someone in this predicament who has been told that they have not been in business long enough, even though they have been working in the same or similar line of work for an extended period of time, have them contact me.