And yet, you’ve probably wondered if—in spite of all your hard work—you’ll ever be able to take some of the big life steps your non-artist friends take as a matter of course. Buying a house or condo, for example. When was the last time you heard about a bank that wanted to give a playwright a mortgage?
Qualifying for a mortgage as an artist is not only possible, it’s not nearly as difficult or unusual as you might think. Let’s take a look at five major factors that will influence the qualifying process.
“Most people think that, as self-employed artists, they are going to have to make a huge down payment or pay unspeakably high interest rates,” says Isabelle Hebert, a culture banker at ATB’s Branch for Arts + Culture. “That might be true through some lenders, but I can guarantee it is not the case with me at The Branch.”
While the size of your down payment does matter, artists have the same down payment options as any other home buyer.
There are two basic types of mortgage: conventional (or uninsured) mortgages, which have down payments of 20 per cent or more, and insured mortgages, which have down payments between 5 and 20 per cent.
This means that, as an artist, you may only have to come up with five per cent of the purchase price of your future home. The catch is that insured mortgages require an insurer’s approval as well as a bank’s approval.
A big part of qualifying for a mortgage is being able to demonstrate that you can afford to make mortgage payments, which means being able to prove your income. For an artist, especially a self-employed artist, that may not be as simple as producing a T4 slip or a pay stub.
If you have a day job (or if your spouse has a day job) that salary might be sufficient to qualify you for a mortgage. But if the bulk of your income comes from some form of contract work, your average income over the past two years is probably the best metric by which to judge whether or not you can afford a mortgage.
So how do you prove your average income over two years when you’ve been paid in cash, cheques (who still uses cheques?), arts grants, free drinks, e-transfers and contributor’s copies?
The most important documents you’ll want to provide a banker are your last two years’ T1 Generals, your most recent Notice of Assessment (NOA), your most recent T4s (if you have any), any recent letters of employment and two years of financial statements (if you’re incorporated). If you happen to be making lots of money on investments, that is a source of income as well; in this case, you can provide a Statement of Investment Income (T5).
As you’ve probably guessed, you’re going to have to be caught up on filing your income tax. Not only will you need to provide a banker with official documents like T1s, you won’t be able to use unclaimed income to qualify for a mortgage.
Sole proprietorship vs. corporation
Whether you’re registered as a sole proprietorship or a shareholder in a corporation will change how your income is assessed.
If you’re a sole proprietor, the two-year average of net business income on your T1 generals may not be enough to qualify you for a mortgage. (Because most people go out of their way to deduct the largest amount possible from their income, often your net income is only about half of your gross business income.)
If your average net income is insufficient, a banker can also take your net income from lines 135-143 of the T1, and “gross up” by 15 per cent. Another way to qualify is to re-include in your net income certain federally permitted deductions: Capital Cost Allowance, Interest, Motor Vehicle Expenses and Business Use of Home.
If you’re a shareholder in an incorporated business, a banker can look at the available cash flow of the business, and bump up the net income by adding back 50 percent of interest, amortization and taxes. A banker can also look at shareholder payouts in the last year and use 50 per cent of a shareholder’s payouts as usable income.
Considering transitioning from sole proprietor to incorporated company before house shopping? Make sure you make that decision well in advance. Bankers use audited financial statements when assessing you for a mortgage, which means you need to be in business for at least one year so that an accountant can produce an audited statement.
“I think ultimately it needs to be a decision made in conjunction with an accountant, as so much will change above and beyond just the mortgage application,” Hebert says. “But just by pure math analysis, if more than 50 per cent of your gross income is being deducted as a sole proprietor, the way I calculate your income as a shareholder may be higher.”
There’s not much to say about credit scores, other than that they still do play a pretty big part in the mortgage approval process. You’re probably going to need a score of at least 630 to qualify.
The good news is that if your score is lower, a banker can work with you to improve your credit score and your spending habits. It might take a little longer to qualify for a mortgage, but when you do, you’ll be financially healthier—and better equipped to handles the responsibilities of home ownership.
What you can afford
“Walk before you run,” Hebert says. “Get a feel for what kind of payment you feel comfortable being locked in to.” While co-financing (perhaps with a parent) and borrowed down payments are options that might be available to you, if your income is not enough to qualify for a mortgage, it might not be wise to put yourself in a position to have to pay one.
Whatever your down payment, income, business registration or credit score, the most important thing to remember is that you, as an artist, have options when it comes to purchasing a home of your own. And we’re here to help.
If you'd like to talk to someone about artist financing, please visit atb.com/thebranch.