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Financing In The Gig Economy

General Judy Garel 2 Sep

Financing In The Gig Economy

The Gig economy is growing. According to Stats Canada, 1 in 10 Canadians in the labour force worked in the gig economy before the pandemic— approximately 1.7 million Canadians. In a report on the gig economy, Payments Canada, who own and operate Canada’s payments clearing and settlement infrastructure, have a breakdown HERE on the the composition of the workers comprising this growing segment and how this area is trending.

Trade-offs when working Gigs

The gig economy is characterized by people working freelance­ or in short-term contracts, possibly for more than one employer. In return for the flexibility of being self-employed or working on-demand workers these workers trade off the security and benefits of being an employee and rely instead on successfully applying their entrepreneurial skills to grow and leverage their network, ultimately creating a financially viable life and business.

Mortgage Eligibility for Gig Workers

When looking for financing, most mortgage lenders want to see a history of consistent income with a likelihood of the same in the future. Consistent employment is the best way to demonstrate that, especially when applying for a mortgage. Good credit scores and a clean credit history can also be important but showing a consistent and steady income is one of the most significant factors in securing a mortgage.

Gig work doesn’t provide a single, steady paycheque from the same employer, which most A lenders prefer when evaluating a mortgage deal. That doesn’t mean a gig-worker can’t qualify for a mortgage. Using a mortgage agent and looking at alternative lenders are great options for people with less traditional sources of income.

What Proof of Income is Required for Gig Workers?

  • They must prove they are earning a consistent income and an ability to pay their mortgage.
  • They need proof of income using professionally documented evidence such as recent financial statements or a statement of business activities.
  • They must prove that the business exists through business license/registration, trade license, or GST registrations/returns. Or, if they subcontract, they may need an employer contract, a lot like a letter of employment.
  • They can include income from retirement plans, rentals, investments, and even spousal or child support payments under the right circumstances.
  • They need proof their taxes are paid and current.

The ongoing trend away from traditional work models has seen lenders respond by developing programs and policies for the self-directed gig worker that recognize that not everyone fits into the same mold. Many options exist for the self-employed. Some lenders, in response to the pandemic impact, have made special provision to their programs to extend the length of time to substantiate one’s income from 2 years to 3, recognizing that 2020 was a disappointing year to many.

Responding to challenges with new opportunity is an absolute must in a world that changes faster with each year. Never assume that what was fact the year before has validity today and if you have a challenge with financing or other areas, a word with a professional is always in order.