For someone who has some sizeable savings but who reported very low income for the past year, is it possible to get approved for a mortgage with, say, 35% down?

In a situation when one has to pay $1500 per month for rent, it may make sense to get a mortgage and pay the same amount down instead. The only question is: can one get approved for a mortgage if one didn't have much income in the previous year? Employment status: self-employed.

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    In the US, banks require self-employed people to bring in a few years of income tax forms to demonstrate income. I would not be surprised if Canadian banks do something similar. – RonJohn Jun 21 '19 at 19:23
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    Can you provide some relative sense of scale to terms like "sizeable savings" versus the downpayment, total loan amount, and income you did have to that monthly $1500 expense? – dwizum Jun 21 '19 at 19:31
  • @dwizum In this situation the income was smaller than $1500 per month, so one lived off the savings. But I guess it doesn't matter that much, and what matter are the relative amounts. – sequence Jun 22 '19 at 0:37

Canadian lenders are required by law to lend to you only if they can verify that you can afford the payments. In fact they are required to make sure you pass the Mortgage Stress Test to prove that you could continue to meet the payments even if interest rates rose.

This means they are absolutely going to have to see evidence of your income. For employed people this is usually just a matter of showing a payslip, and having the bank verify how long you have been working there. For self-employed it is more difficult.

'Not having much income last year' may or may not be a problem. If 'not much income' would still allow you to make your payments (and your other expenses) then that's fine. If your income would not have allowed you to make the payments last year, they will want evidence to show that last year was an exceptional circumstance, which you can do by providing evidence of much higher income in previous years.

Obviously they are not going to give you a mortgage if you couldn't afford the payments on your normal income.

Even if you have savings they will not treat the savings as income because you might spend it. If that is your case you are far better off using the savings to buy the house, and have no mortgage or a very small one your income can support.

(To answer your direct question, they are absolutely going to want to verify your income. This isn't 2008.)

The easiest way to find out is to go to a bank, take your documentation, and ask to be pre-approved. They will tell you how much mortgage you can afford, and different banks aren't going to be much different.

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    I'll add: For self-employed individuals, most banks will at least want to see personal income tax returns and matching Notices of Assessment for the previous two years. The average total income (line 150) over those two years is what they'd likely use for the stress test. – Chris W. Rea Jun 21 '19 at 21:56
  • Thanks for your answer. Can one qualify for a mortgage if one hasn't had significant income for some time but one has significant savings in the area of 70-100% of the property cost? For if a bank wants to see that there will be enough money to pay the mortgage and the downpayment is, say, 35%, the money for the next few years is already there. Contrary to employment, reasonably speaking, there is more guarantee in the case of savings because the money is already there, whereas in the case of employment the bank assumes money that is not there yet. – sequence Jun 21 '19 at 22:50
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    If you haven't had a significant income for some time there is no way they will give you a mortgage. Your having savings is not a guarantee at all, because for all they know you might spend them all. And they would ask "why not use all those savings to put a very large down payment on the house, and get a very small mortgage?" Which would almost certainly be cheaper for you. – DJClayworth Jun 22 '19 at 0:58
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    @DJClayworth exactly! If you've got 100% the cost of the house in a savings account, just buy it with cash and save the huge expense of interest paid over a few decades. The only time when "savings" might count towards income would be if the "savings" were in some sort of managed fund where you weren't allowed to turn around tomorrow and spend it all (i.e. a trust fund or something) - at that point, it's effectively income and not really savings. – dwizum Jun 24 '19 at 12:53

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