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Qualifying For A Self-Employed Home Equity Loan

Roland Waithe

15 Jun 2020 Home Equity Loans

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Self-Employed Home Equity Loan Qualifications

According to Statistics Canada, in 2018 almost 1 in 6 Canadians were classified as ‘self-employed’. Many of these self-employed Canadians report challenges in obtaining traditional home equity loans from the predominant Canadian banks due to the stringent qualification requirements they impose. As a result, many self-employed Canadians rely on alternate or private lenders to obtain their home equity loan.

Private mortgage lenders are typically private companies or individuals willing to provide short-term, interest-only home equity loans or mortgages to those who do not meet credit or employment requirements of Canada’s primary banks.

Unlike Canada’s banks, private lenders are not regulated by the Bank of Canada, which allows them to set their own rates and qualification standards. As a result, self-employed borrowers can receive the financing they require, though often at a higher interest rate. Obtaining financing through private lenders often requires borrowers to have considerable home equity available to offset a greater risk of default.   

Canadian Banks Self-Employed Home Equity Loan Qualifications

Canada’s major banks and ‘A’ lenders require personal income and tax statements when qualifying a self-employed borrower for a home equity loan. For self-employed business owners demonstrating income can prove difficult as there’s often more financial advantage to maximizing expenses and minimizing income to benefit on taxes. Because of this many self-employed borrowers find it difficult to qualify with a major bank and instead turn to alternative lenders where mortgage qualification criteria are more lenient.

Beyond personal income and tax statements traditional lenders will also evaluate the following when issuing financing to a self-employed borrower:

  • Business license
  • Proof of business ownership
  • Business financial statements
  • Proof of tax payments
  • Revenue forecast verification
  • Credit scores of business and borrower

Qualifying for a Self-Employed Home Equity Loan Through Private Lenders

Obtaining a home equity loan through private and alternative lenders has become increasingly common for self-employed borrowers in recent years. Private lenders offer greater leniency in their qualification requirements compared to traditional lenders by placing emphasis on a borrower’s home equity rather than personal income, credit scores and tax statements when financing self-employed borrowers. To qualify for a private home equity loan, lenders will require the following documents:

  • Business licence or confirmation of an active business
  • 6-12 months of bank statements
  • Two forms of personal identification

Private lenders will then use loan-to value (LTV) as an assessment of risk to determine what amount a self-employed borrower would be eligible to borrow. To calculate LTV, lenders divide the home equity loan amount by the appraised value of the borrower’s property and express this as a percentage. Typically, LTV above 80% introduce greater loan risk to private lenders, and therefore will generate a higher interest rate. Generally, private lenders are willing to lend up to 90% LTV.  

Apply for a Self-Employed Home Equity Loan

Rateco specializes in home equity loans for self-employed Canadians, working with various institutions from national banks to private lenders. Rateco ensures all borrowers are partnered with the appropriate financier for their personal needs and qualifications.

If you are interested in learning more about your financing options as a self-employed Canadian contact Rateco today and speak with one of our home equity loan experts!

Apply For Your Home Equity Loan Now!