Self Employed Mortgages and Income

Matthew Jackson Mortgage Tips

Here is a good introduction and some information on self employed mortgages.

As a Sole Proprietor the basic guideline the banks go off of would be a two year average of your line 150 income. What that means is your income after all of your write offs showing on your notice of assessment line 150.

So if your gross income is $100,000 but you write off $60,000 to bring it $40,000, that is what the bank would use. Lets say in 2013 your NOA income is $30,000 and in 2014 it is $50,000, they would average that to make $40,000.

However, if your income in 2014 is $50,000 and in 2014 it is $30,000, they generally use the most recent lower amount. So the income they would use would be $30,000.
Some banks will allow an increase in the average income by 15% or so if you are a sole proprietor depending on the client.

There are exceptions to these guidelines but what I have written is the general bank guidelines.As a self-employed individual who has a corporation and pays themselves as either an employee or with dividends the bank guidelines are basically the same as being sole proprietor.

The main differences are the following:
– Require more documentation such as Incorporation documents, business license, GST returns, T1 generals, financial statements and business bank statements
– showing income. Usually only request one or two of these.
– Banks will not allow a gross up of income by 15% since all business expenses should be paid by the company.

The biggest difference with having an incorporation is if the banks see and don’t like your financials, they can decline your file on a risk basis. Banks are only getting tougher to get a mortgage through so having the right mortgage broker and other professionals who understand what the banks want is becoming even more important!

One last program the banks have which differs greatly from how they view employees is the “Stated Income Program”. This program you would need a minimum of 10% down payment but are allowed to use more of your gross income if needed in order to have a larger mortgage.
The benefit to this program is you have a higher purchasing power, the downfall is there is an insurance premium (CMHC / Genworth ) up to 35% down payment. The insurance premium is higher than someone who is an employee getting a mortgage or someone using their two year average of income due to the perceived risk the bank is taking.

Not every bank views income the same way, so if you get declined by one bank due to your income, a mortgage broker may be able to get you approved at another bank simply by them viewing your income differently.

Get Approved Today!

Matthew Jackson
www.mortgageokanagan.com