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, they 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
1. If you are incorporated, we need two years
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.
It helps if you have good credit, but it’s not essential to borrowing if you have 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.