We often wonder why it’s difficult for self employed to obtain a mortgage when nearly 20% of all income earners in Canada are self employed. This is because income is not always easy to prove.
Many business owners expense as much as possible to reduce their taxable income. This makes it difficult to qualify for the mortgage. I understand business owners because I’m self employed as well!
Loan-to-value ratio limits:
Self-employed borrowers can now enjoy a new approach to income determination and verification through a simple 15% gross up of the total income (line 150) on their Canada Revenue Agency (CRA), Notice of Assessment (NOA).
Self-employed borrowers who have eligible deductions in excess of the 15% of their income, will have the option to provide financial statements and to add back specific eligible add backs, in lieu of the 15% gross up, to their income.
Mrs. Smith's Notice of Assessments shows that she declares $50,000 net income per year (line 150).
With this new program we can now bonus her income by 15% ($50,000*.15%= $7,500).
For qualifying purposes we can now use an income of $57,500.
Clients who have difficulty proving their true income can qualify based on 35% down. These are clients who are self employed or salaried but cannot prove their additional income such as bonus’s or profit shares and commissioned.
Mr. Jones has operated an engineering company for two years. Due to start up costs his taxable income is very low. Because he has filed his taxes and maintained good credit he can qualify for a line of credit or mortgage for his new home with 35% down.
In addition to reducing the amortization period and raising the minimum down payment required to purchase a home, in 2014, the Canadian Mortgage and Housing Corporation (CMHC) discontinued mortgages for those who are self-employed without third-party validation. Before that, self-employed Canadians and contractors only had to state their income. But not anymore.
This made the home ownership dream for hundreds of thousands of Canadians more difficult. That’s because 2.76 million Canadians are self-employed; a whopping 15% of the country. And more and more Canadians step into the ranks of the self-employed every year.
Unfortunately, the big banks don’t really help entrepreneurs and view them as risky. Because you are a self-employed entrepreneur, and might draw a smaller income for tax purposes, the banks think there’s a greater chance that you’ll default on your mortgage.
I pride ourselves in being an expert when it comes to arranging self employed mortgages because I am self employed just like you. If you are Self employed, I have a mortgage solution for you.
I can get you approved using your bank statement income!