WHAT ARE THE MORTGAGE OPTIONS FOR THE SELF EMPLOYED?

For this weeks tip, I wanted to pull the curtain back and talk about how we help self employed borrowers get approved for their mortgage. Self Employed borrowers have always been the most difficult demographic to get approved for a mortgage. But in my view, the most rewarding. Self employed people are the backbone of our economy. They’re entrepreneurs, and take risks to grow their business and provide good paying jobs to Canadians. The risks they take are often at the expense of their personal and financial well being. For that reason, we need to have more programs available to help them get mortgage financing. Due to government regulations and guidelines, it’s more difficult for business owners to get approved for mortgages vs a T4 employee.

The challenge is most business owners try to minimize their personal incomes so they don’t have a large tax bill at the end of the year. Unfortunately, in the eyes of mortgage lenders, it makes things much harder for them to get approved for a mortgage. Is it impossible to get approvals? Not at all, so I wanted to provide a high level overview of a few ways that we’re able to assist self employed borrowers.

Bank Statement program - We look at the business deposits for the last 6 months and multiply it by 2 and come up with an annual income. Then we deduct business expenses such as salaries, leases,supplies, from that revenue and the difference is the personal income we use on the application. The lenders who offer this program are not interested in seeing the T1 generals, or NOAs, all they care about is the revenue in the bank accounts. Higher rates, plus admin fees are usually applicable under these programs. But when you compare the income needed to qualify for a mortgage over a 2 year period, and look at the tax bill on that income, the higher rates will end up being much cheaper.

Written by Joseph Richer Source: https://www.reco.on.ca/ask-joe-question/would-you-recommend-buying-a-home-with-a-rental-unit/

Business for self programs - Most banks have some kind of self employed program. One of my favourites is for incorporated individuals. For this program, we look at the business financials, and add 40-60% of their Net income after taxes to their personal income to assist in qualifying for the mortgage.

Sole Proprietor programs - For those not incorporated, banks will review the T1 generals, and gross up personal income by 15-20%, or add back certain expenses to the borrowers income to help qualify for a larger mortgage.

Net worth program - If the business owner shows minimal personal income, but has lots of assets out - side of real estate, we can use the assets to help get an approval. For example, If their personal income only qualifies for a 400k mortgage, and they want a 1mm mortgage, we have to show they have that extra 600k in liquid investments/cash/GICs to get approved for the 1mm mortgage.

Although these all aren’t perfect solutions, it’s definitely progress to help our self employed clients get the financing they need. If you have any self employed clients who have struggled with financing in the past, please have them reach out, and I can go over some of their options.