Mortgage tips for the self-employed
By Andre Mayer • Bankrate.com

In the old days, self-employed individuals cowered at the idea of seeking a mortgage. That's because bankers tended to look at them askance, often denying them a loan based on a presumption of unreliability.

If you were courageous enough to ask for a mortgage, you not only had to put on your best suit, you had to incant a small prayer to the gods of financial compassion.

Nowadays, banks look a lot more favourably on proprietors, freelancers and contract workers.

"I think there's a recognition, finally, that a lot of people make their living on their own," says James Wood, an independent mortgage broker at Invis Inc. in Winnipeg. "It was a question of catching up to what is reality."

Keep your taxes up to date
In order to qualify for a mortgage, home buyers of all stripes must submit a credit history and declare all outstanding debts. They must also provide documentation of their income.

With salaried individuals, banks generally ask to see a letter of employment and a pay stub. With self-employed people, banks typically require two to three years of personal and business tax statements, depending on whether the individual is incorporated or merely a proprietor.

It goes without saying that this will not help your case when pleading for a mortgage.

Wood points out that while banks look at the gross income of a salaried person, net income is the key determinant in transactions with self-employed individuals.

Here's why: while a salaried person and a self-employed individual might profess the same gross income, the latter is entitled to deduct all manner of business-related expenses, which inevitably reduces her net income to a lower level than her salaried counterpart.

A big down payment helps your case
The aforementioned circumstances don't take into account people who've been self-employed for less than three years. There are a variety of financial products in place for people in that boat. Deering explains one scenario.

"The bank may look at it and say, 'Well, Mr. Smith was an engineer for three years at Shell Canada. For the last two years, he's been contract. Let's look at the last two years' tax returns. He's a professional. He made $60,000 as an employee and he made $60,000 as self-employed. Let's proceed."

Some banks offer a product called a "no-income qualifier." The lender will overlook your recent income (or lack thereof) if you can show that you have assets -- such as investments, perhaps -- and that you have sufficient funds to make a down payment.

There are also equity programs available that turn a blind eye to your income if, for example, you can make a 15-percent down payment from your own resources.

If making a reasonable down payment is too onerous, many lenders will let you attach a co-signer to your loan. This person would necessarily be someone with a good credit history who was strong enough financially to carry the debt load if you default.

The bottom line is that self-employed people no longer need to feel slighted. Their chances of securing a mortgage are better than ever. And once they've proven their financial trustworthiness, they enjoy the same interest rates as the rest of the working populace.

Says Deering, "The products we have available today blow everything out of the water, [even what] was available three years ago."

Andre Mayer is a writer in Toronto.