The process for buying investment property is largely similar to the process of buying a home. For self-employed and commissioned workers, most lenders require the same documentation when considering eligibility for a mortgage, but requirements and mortgage structures can differ.
For self-employed individuals, obtaining a mortgage on an investment property begins with submitting paperwork documenting income history. The Notice of Assessment lists net income on line 150, and if this number is high enough to qualify for a mortgage, the lender considers work history and credit score to determine if you are eligible.
Those with low taxed income can go a different route, indicating their gross income under the “stated income” approach. Using this method, the individual authorizes the broker to announce your total income, rather than one indicated on your Notice of Assessment. Then, the lender compares that number against the income and expenses listed on your tax documents.
If the numbers are consistent (and your gross income figure is reasonable in comparison with the income of other individuals working in your field) you can qualify for a more favorable mortgage. In general, “A” lenders ask for a 20-percent down payment for investment properties. If you are able to make a 20-percent down payment, you are considered a fairly low risk for defaulting on your mortgage.
If your stated income and the figure listed on your T1 General are not quite consistent, you may have to do more to strengthen your mortgage application. Most lenders, again, require a down payment of 20 or 25-percent, but you may have to add another party with sufficient income to the mortgage in order to be eligible.
Those individuals working on commission go through a similar process, with some slight differences. Commissioned workers cannot use the stated income method, so they must rely on the figure listed on their Notice of Assessment.
In addition, they may have to provide additional documentation of their work, such as a letter from their employer to prove that they are registered in their occupation. This can serve as a replacement of the business license that other self-employed individuals are required to provide.
With a good credit score and demonstrated work history, commissioned workers can obtain similar mortgages to other self-employed individuals. These typically include 20-percent down, assuming the individual’s financial standing is sufficiently sound.
In general, investment properties require higher down payments than residential mortgages, but they are still available for those who are self-employed or on commission.
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