Cottage mortgages for the self-employed

How lenders read your income

Self-employed applicants need income that a lender can verify. Tax returns, Notices of Assessment, business financial statements and current business activity may be relevant. Requirements differ by programme and ownership structure. Bring the documents early, especially if income has changed or business expenses make the tax return difficult to interpret.

A cottage adds a layer on top: you are carrying your home and the new property, so the qualifying income has to cover both at the stress test rate. See how lenders qualify you with two homes.

Documents to have ready

• Two years of personal tax returns (T1 General) and Notices of Assessment.
• Proof that no taxes are owing to the CRA, including HST if you are registered.
• Business registration or articles of incorporation.
• If incorporated, financial statements for the company.
• Business and personal bank statements, which some lenders use to support income.
• Your current mortgage, property tax and debt statements, plus proof of down payment.

Down payment from a business

Many business owners plan to fund the cottage down payment from money sitting in their company. Lenders want to see the money in a personal account with a clear trail, and pulling it out of a corporation usually means a dividend or salary that is taxed. Talk to your accountant about the timing, ideally in the year before you buy, so the withdrawal also shows up as income on the tax return a lender will read.

Insured options

When CMHC left the second-home market in 2014, it also stopped insuring self-employed borrowers without third-party income validation. Sagen and Canada Guaranty kept self-employed programs, and Canada Guaranty markets its Low Doc Advantage program. Whether a reduced-documentation program can be paired with a second-home insured mortgage is an insurer and lender decision, and we have not seen it confirmed in writing. In practice, plan on full documentation if you want to buy a year-round cottage with less than 20% down.

Conventional and alternative options

With 20% or more down, you have more room:

• Big banks and monoline lenders on full documentation, if your declared income is strong enough.
• Credit unions, which often take a more personal look at a business owner's file and are comfortable with rural and seasonal cottages.
• Alternative lenders, which can use other ways to verify income, usually with a higher rate and a larger down payment.
• Private lenders as a short-term bridge while you build the documents for a regular lender.

Talk to Jeff and Emily

Self-employed and thinking about a cottage? Send us your last two years and we will show you the realistic options.

Or call or text 416-628-9682

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Using home equity instead

If you already own a home with good equity, borrowing against it can sometimes be simpler than qualifying for a separate cottage mortgage, especially for a seasonal or water access cottage. You still have to qualify for the borrowing, but the property question goes away. See using your HELOC to buy a cottage and try the home equity calculator.

Seasonal and water access cottages for business owners

Boat access does not automatically rule out mortgage insurance. Sagen’s Type B programme permits boat-only access for eligible personally occupied properties, with up to 90% financing and an own-resources down payment. Canada Guaranty excludes islands without bridge access. A lender must still accept the exact access, title, condition and marketability; insurer eligibility is not a mortgage approval.

Corporation-owned cottages

Some business owners ask about buying the cottage through their company. It is possible in some cases, but it changes the lender pool, the tax picture and how you can use the property personally. Talk to your accountant first, then to us.

Getting ready a year ahead

1. Talk to your accountant about the trade-off between write-offs and qualifying income for the next tax year.
2. File on time and pay any balance owing, including HST.
3. Keep personal and business accounts separate and clean.
4. Pay down consumer debt and keep credit card balances low.
5. Build the down payment in one place, with a clear trail.
6. Get a pre-approval early so we can spot gaps. See cottage pre-approval.