Self-Employed Income Normalizer
Calculate your mortgage qualifying income using Prime (2-year average with add-backs) and Alt-A (stated income) methods. Understand what lenders see and maximize your borrowing power.
Enter Your Business Income Data
📊Prime Path (2-Year Average)
For borrowers with 2+ years of tax returns. Best rates with traditional lenders.
Your net business income from 2 years ago (Line 13500-13700 on T1). This is AFTER expenses.
Your most recent year net business income (Line 13500-13700 on T1). This is AFTER expenses.
Add-Backs (Expenses to Add Back)
Line 9936 (T2125)
Financial statements
Line 9945 (T2125)
Requires CPA letter
🏦Alt-A Path (Bank Statement Program)
For borrowers with strong deposits but lower reported income. Higher rates, more flexible.
Total deposits into business bank account (for Alt-A stated income calculation).
Estimated expense ratio (Alt-A lenders assume a % of deposits go to expenses). Default 30%.
Business structure: Sole Proprietor (T2125), Corporation (T2), or Partnership (T5013).
How long you've been operating. Prime lenders require minimum 24 months.
Application Readiness
Document Checklist
Check the documents you have ready to see your application strength in real-time.
Understanding Self-Employed Mortgages in BC
Prime Lenders (A-Lenders)
5-6% RatesLowest rates available for self-employed borrowers with strong documentation.
Requirements:
- 2 years in business minimum
- 2 years T1 Generals + NOAs
- T2125 or T2 corporate returns
- Income stable or increasing
- Full documentation required
Best for: Established businesses with 2+ years history and clean tax returns
Alt-A (Stated Income)
6-8%+ RatesFaster approval with less documentation, but higher rates and fees.
Requirements:
- 6-12 months in business
- Business bank statements
- Business license/GST registration
- Credit score 600-650+
- Minimal documentation
Best for: New businesses, complex income, or recent tax write-offs. Refinance to Prime after 2 years.
💰 Understanding Add-Backs: How to Increase Your Qualifying Income
Self-employed borrowers minimize taxes by claiming business expenses. Lenders recognize this and "add back" certain expenses when calculating your qualifying income because they don't represent actual cash leaving your pocket.
1. CCA / Depreciation
Line 9936 on T2125
Most common add-back. You claimed $15k depreciation on equipment? Lender adds it back because it's a paper loss, not cash out the door.
2. Business-Use-of-Home
Line 9945 on T2125
Claimed $8k for home office (rent, utilities)? Lenders add it back (up to 30% of net income typically).
3. One-Time Expenses
Requires CPA letter
Lawsuit settlement? Major repair? COVID loss? With documentation, lenders may add back unusual costs that won't recur.
💡 Example: Net income $60k + $15k CCA + $5k home office = $80k qualifying income (33% increase!)
📊 The 2-Year Average Rule (and When Lenders Don't Use It)
Prime lenders average your last 2 years of normalized income (net + add-backs) to smooth out fluctuations. However, if your most recent year declined significantly (typically 10-15%+), they may use only the recent (lower) year to be conservative.
✅ Stable/Increasing Income
Year 1: $80k
Year 2: $90k
Qualifying: $85k (average)
⚠️ Declining Income (Recent Year Rule)
Year 1: $100k
Year 2: $80k (-20%)
Qualifying: $80k (recent year)
Related Resources & Guides
📖 Week 7 Playbook
Complete guide: Self-Employed Mortgages in BC - Proving Income Without the Headache
Read the Complete Guide →✅ Document Checklist
Complete checklist of documents needed for self-employed mortgage approval in BC.
View Checklist →📄 Add-Backs Worksheet
Printable worksheet to identify and calculate all possible add-backs for your business.
Download PDF →Need help planning your down payment as a self-employed buyer?
Try our Down Payment Planner →Frequently Asked Questions
How do lenders calculate income for self-employed borrowers?
Lenders use a process called 'income normalization' where they take your net business income from your T1 tax return and add back non-cash expenses like CCA (depreciation), business-use-of-home, and one-time costs. They then average the last 2 years. For example: Year 1 net $80k + $10k CCA = $90k. Year 2 net $90k + $10k CCA = $100k. Average = $95k qualifying income.
What are 'add-backs' and why do they matter?
Add-backs are expenses you claimed on your taxes that lenders add back to your income because they don't represent actual cash leaving your business. Common add-backs: CCA/Depreciation (Line 9936 on T2125), Business-use-of-home expenses (Line 9945), and One-time expenses (with CPA letter). These can increase your qualifying income by $5,000-$30,000+ depending on your business.
What's the difference between Prime and Alt-A lenders for self-employed?
Prime lenders offer the lowest rates (5-6%) but require 2 years in business, full tax documentation (T1 Generals, NOAs, T2125s), and stable/increasing income. Alt-A (stated income) lenders accept 6-12 months in business with just bank statements showing deposits, but charge higher rates (6-8%+). Alt-A is faster approval but costs more.
Why would lenders use my most recent year instead of averaging 2 years?
If your income declined significantly year-over-year (typically 10-15%+), lenders apply the 'most recent year rule' and use only the lower recent year instead of averaging. This protects them against declining income trends. Example: Year 1 $100k, Year 2 $80k (20% decline) = lender uses $80k, not $90k average.
What documents do I need for a self-employed mortgage in BC?
For Prime lenders: 2 years T1 General tax returns + NOAs (Notice of Assessment), 2 years T2125 (Statement of Business Activities), Business license/registration, 6-12 months business bank statements, and optionally a CPA letter. For corporations, add 2 years T2 corporate returns and financial statements. Alt-A lenders require less: 6-12 months bank statements, business license, and credit check.
Can I get approved if my business is less than 2 years old?
Yes, through Alt-A (stated income) lenders. They accept businesses as new as 6-12 months old using bank statements to verify deposits. Rates are higher (1-2% above Prime), but you can refinance to a Prime lender once you hit 2 years in business and have filed 2 years of taxes. Some credit unions also have 1-year programs.
Important Disclaimers
For illustrative purposes only. This calculator provides estimates and should not be considered financial advice. Actual qualifying income depends on lender underwriting, add-back policies, income trend, debt ratios, credit score, and your complete financial profile. Not all lenders accept all add-backs; some cap total add-backs at 50% of net income. One-time expense add-backs typically require a CPA letter and lender approval. Alt-A (stated income) calculations are approximate and vary by lender.All rules current as of September 2025 and subject to change. Always consult with a licensed mortgage professional before making decisions.