How a self-employed borrower proves income

Which number does a lender actually look at?

Most lenders read net income from your return, meaning what is left after every expense, not gross revenue. Generally they average the last two years; if year two is higher, some will use the higher year and others still average. It depends on the lender.

That is the squeeze. You claim every expense to keep tax down, and the number a lender reads goes down with it.

What documents do you need to gather?

Two years of T1 returns and two Notices of Assessment come first, then proof the business is running: licence or registration, GST number, six to twelve months of business bank statements. Incorporated files add two years of financial statements, T2 returns, and an accountant letter confirming ownership percentage and years in business.

You also have to show CRA is paid. Unpaid tax is the single most common thing I see stop a file — once CRA registers a lien, most lenders stop reading.

What if your reported net income is too low?

Then some lenders will read deposits instead of the tax line.

The usual method is six to twelve months of business statements with a margin that is reasonable for your industry applied to get a usable income. These are generally called business-for-self programs. The trade-off is a larger down payment and a different cost structure, and whether that route is open depends on the whole file.

Can money left in the corporation count?

Sometimes, if you own enough of the company and it has been profitable.

Where you hold most of the shares and the corporation shows two years of steady after-tax profit, some lenders add a share of that profit back to your personal income, supported by financial statements and an accountant letter. Heavy corporate debt, shareholder loans, or profit that swings hard year to year generally close this off.

Can you apply with less than two years self-employed?

You can, but the list of lenders gets shorter.

Two years is the common benchmark, not a hard rule. If you worked in the same field as an employee before going out on your own, many lenders will count that experience, provided the evidence connects: old T4s, an employer letter, the contracts you hold now. Under a year in business, the file leans on down payment and credit instead.

When should you start preparing?

Before you file, not after you find a house.

The expensive mistake is minimizing income at tax time and deciding to buy the following year. Once the return is filed, changing it is slow.

If you plan to buy within a year or two, tell your accountant the return will be used for a mortgage. How you balance tax savings against borrowing room depends on the file, so run the numbers with me first.

Common questions