Short answer: Self employed borrowers get hit twice: lenders start from a conservative income (taxable income after write offs, averaged over two years), then qualify you at the stress test rate (the higher of 5.25% or your rate plus 2%). To raise your borrowing power, pay down car loans, cards and lines of credit, increase your down payment, keep reserves, choose the right lender lane and time the purchase after a stronger tax year.
Why It Hits Harder
The income number is already conservative because of write offs and averaging. Add the higher qualifying payment from the stress test and borrowing power drops even when the business is healthy.
Debts That Hurt Most
- Vehicle loans or leases
- Credit card minimums
- Lines of credit
- Personal loans
- Support payments
- High condo fees on the home you want
How to Improve Borrowing Power
- Reduce monthly debt payments
- Increase your down payment
- Keep more reserves after closing
- Improve your credit score
- Choose the right lender lane
- Buy after stronger tax years
Your Shopping Budget
Mortgage payment, property tax, heat, condo fees, other debt payments, closing costs and reserves. Try the stress test calculator.
→ Related: Self Employed Pre-Approval, Step by Step
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Frequently asked questions
Why is my approved amount lower than my cash flow suggests?
Lenders use your taxable income, often averaged over two years, not business cash flow, and then qualify you at the stress test rate.
Do car loans affect approval?
Yes. Vehicle loans and leases count in your debt ratios and directly reduce the mortgage you qualify for.
Do condo fees affect qualification?
Yes. Lenders usually add half the monthly condo fee to your housing costs.
This article is general information, not personal financial advice. Rates, rules and programs change. Talk to a licensed mortgage broker about your situation. Lacroix Mortgage Group is licensed through Mortgage Connection Inc.