Articles - Loan Central

You Did a Great Job Minimizing Your Taxes, Now Try Qualifying for a Mortgage!

By: David Grossman Mortgage Agent / Lic# M08005924

You worked hard to get your business off the ground and finally you’re making money. Congratulations, it took years in the making. One of the benefits of being self employed — you have legitimate tax write offs. No-one is suggesting you would ever want to avoid paying taxes altogether, but it’s a perfectly legitimate goal to minimize the taxes you pay — and if your accountant is any good, s/he will help you find legitimate tax savings strategies. Now that you’ve written down your income, there’s only one problem — when you go to the bank to apply for a mortgage, they tell you you don’t make enough money!

When it comes to lending money, banks are very strict, and if you don’t have a permanent, full time job with a steady paycheque, you could be in for a rough ride at the bank.

I will never forget the time a self employed client of mine was repeatedly assured by his bank that he would not have a problem qualifying for a mortgage. After an exhaustive search for just the right property, and four days into a five day financing condition, his bank finally gave him the bad news. They could not help him. Although he had been earning a steady paycheque for a time, he was not a permanent employee, and he did not qualify for bank financing. He was shocked to learn he was rejected by the bank at the eleventh hour. Fortunately, we were able to get the applicant approved in one day and he was delighted. An experienced mortgage broker will know where to take your loan application to, to find you the best available mortgage given in the shortest period of time. We were able to get the client’s approved in one day.

What Do Self Employed People Need
to Qualify for a Mortgage

Income:

1. If you are incorporated, we need two years
financial statements
2. Two years tax returns and 2 years
Notice of Assessments
3. Twelve months bank statements
4. If you cannot prove income at all, it may still be possible
to arrange a mortgage, depending on your net worth
and/or amount of equity you have in the property.

Credit:

It helps you have good credit, but it’s not essential to borrowing if you a substantial down payment and/or equity in a property. To have good credit, you should have at least two or three trade lines for at least two years. A trade line is a credit card, a line of credit or an installment loan where you have a fixed monthly payment, like a car loan, for example.

Down Payment/ Equity:

When purchasing a property, a 20-25% down payment is considered substantial. With less than 20% down, you should have provable income and great credit, otherwise the borrowing costs will be very high.

Contact: david@loancentral.ca
Tel: 647.557.7389

Getting A Bigger Mortgage Loan on Your Rental Properties

By: David Grossman Mortgage Agent / Lic# M08005924

“Alternative lenders use what they call “rental offset” in calculating the maximum allowable mortgage …the end result is we (mortgage brokers) are usually able to get people a lot more money.”

I was recently approached by a couple who felt so good about the purchase they made on their family home ten years earlier, they now felt ready to buy an investment condo. They had steady jobs and recently inherited $200,000. The plan was to use the inheritance towards the down payment.

The purchase price of the condo they wanted to buy was $400,000, projected rental income $1,800 monthly, combined maintenance and property taxes $650 per month.

They asked me for help with their financing options.

The Bank:
Where investment properties are concerned, banks usually take 50% of the rental income from an investment property and add that to your other income to calculate your maximum mortgage. Even with $1,800 per month in rental income from the condo, the maximum the couple would qualify for at the bank was just $100,000. Getting the mortgage at the bank was not an option since the couple only had $200,000 to put down and the purchase price was $400,000.

“We were able to get the borrowers a $300,000 mortgage vs the bank who were only willing to loan $100,000”

Alternative Lender:
Mortgage brokers often work with alternative lenders that charge a slight premium over bank rates, but the lending rules are very different than banks. Rates with alternative lenders start in the 4% range compared with around 3.5% at the bank. Alternative lenders use what they call “rental offset” in calculating the maximum allowable mortgage. They use a portion of the rental income — usually 80% — to effectively “cancel out” expenses like mortgage, maintenance and taxes, and the borrower needs only to be able to cover the difference. The end result is that mortgage brokers are usually able to get people a lot more money. In the above noted example we were able to get the borrowers a $300,000 mortgage vs the bank who were only willing to loan $100,000. In the end, we did arrange the mortgage for the purchasers with one of our alternative lenders and the couple decided to take the extra $100,000 we saved them and use it to top up their RRSPs!