How does self-employment affect qualification?

For self-employed borrowers, lenders generally qualify you based on your personal income as reported to the CRA — the amount you actually paid personal income tax on — not your business’s gross revenue. This means write-offs and deductions that reduce your taxable income can also reduce the mortgage amount you qualify for, even if your business generates significantly more cash flow than your reported income suggests.

Most lenders average your last two years of reported income and use the lesser of that average or your most recent year. Some lenders offer “stated income” or gross-up programs designed specifically for self-employed borrowers with strong business financials but lower reported taxable income — this is an area where working with a broker who knows which lenders are flexible on self-employed files makes a real difference.