How Income Is Calculated When Self Employed

Qualifying for a mortgage when you are self employed can look a little different than it does for someone who is salaried or hourly. Because your income may fluctuate from year to year, lenders typically take a closer look at your financial history to determine what income can be used for your mortgage application.

In most cases, lenders will review your last two years of personal tax returns, often referred to as your T1 Generals, along with the corresponding Notices of Assessment from the Canada Revenue Agency. They will usually calculate your income by averaging the last two years of reported income to get a more consistent picture of your earnings.

For business owners who write off a significant amount of expenses, the income shown on tax returns may appear lower than the actual cash flow of the business. In some cases, certain lenders can add back specific business expenses to better reflect your true income, depending on the structure of the business and the lender’s guidelines.

There are also mortgage programs designed specifically for self employed borrowers. Some lenders offer stated income or alternative lending programs that allow your income to be supported by factors such as business bank statements, contracts, or overall business performance rather than relying strictly on net income shown on tax returns.

Every self employed situation is different, which is why it is important to review your documents and income structure carefully before applying for a mortgage. With the right strategy and lender selection, many self employed individuals are able to successfully qualify for financing.