You should be planning your mortgage at least two years out if you’re self employed. And more specifically, that’s two tax years, so make sure you start counting before you file your taxes.
This is the single biggest disadvantage self-employed borrowers face.
It is not that lenders dislike business owners. It is that you are approaching the conversation with documents that work against you. So how do you make sure that things actually line up?
Most programs average your declared income over two years. So if you filed your taxes aggressively last year and the year before, that history is set. I cannot go back and change it. If you did pay the tax, we can go to an A lender and get you excellent rates. If you did not, we may need to go to a B lender, and that costs you.
Neither outcome is wrong. But you should know the consequences before you make the decision in the first place.
Two years out is when the first of your two qualifying tax years gets filed. This is the important one. If you want a traditional mortgage, this is the year to start declaring enough income to support it.
One year out is the second qualifying year. Same principle. Between these two filings you are building the income history that a traditional lender will average.
Three to six months out is when we do the pre-approval properly, run the numbers, confirm the program, and build your blueprint.
Anything less than three months and there is much less that can be done. There are still options, but not nearly as many as if you were planning from the start.
We meet with our business-for-self clients in the new year before they file, or at least we offer it, and the conversation is short and specific.
What is your buying timeline? What kind of purchase, and roughly what price point? What down payment will you have? Based on that, how much declared income do we need for an A lender to work? What is the tax cost of getting there? And is that cost more or less than what the B side would cost you?
Then you take that to your accountant with a target rather than a vague instruction. That single conversation is worth more than anything I can do for you six months later.
Whichever route we choose, it becomes a plan. That is the difference between strategy and discovering your options after the fact.
Do not let this discourage you if you are buying next month and did not plan any of it. Most of my self-employed clients come to me exactly that way and we get them financed.
The point is not that you missed your chance. It is that if you have time, use it, because time is the one advantage on these files that money cannot replace.
And if you are buying now with no runway, we work with what you have. There are more programs available than most people realize, and a no from one institution says nothing about what the rest of the market will do.
How far in advance should self-employed buyers plan a mortgage?
Two years, because most lender programs average your declared income across two tax years. The earlier you know your target, the more control you have over the outcome.
Should I talk to my accountant about my mortgage plans?
Yes, and ideally with a specific income target rather than a general instruction. Your accountant can only optimise for what they know you are aiming at.
Can I get a mortgage in my first year of self-employment?
It is more difficult but not impossible. Some lenders will consider shorter histories, particularly with a strong down payment or where you were previously employed in the same field.
Does incorporating help me get a mortgage?
It can, because some lenders will add back a portion of retained corporate income to your personal income. It also adds complexity, so it is worth discussing both the tax and lending sides before you decide.
Is it too late to plan if I am buying in three months?
No. You have fewer levers but plenty of options. Most self-employed clients come to us inside that window and we get them financed.
