As a small business owner, or for someone who is self employed, getting home financing could be quite a daunting task even though your net worth most likely is higher than the average.
Canada has over a 2 million people who are self employed and a little over a million who own small businesses. Getting a mortgage could be challenging and hence it is important to understand all the rules and terms of obtaining a mortgage.
So, before you approach banks or any other financial institutes for a mortgage, you must consider the following points if you are a small business owner in Canada.
The rules for lending have changed recently. In February this year some of the major changes were announced that apply for everybody. The very first change was that home buyers are now required to set a 10 percent down payment if the price of the home is above $500000. It might seem like quite a lot to put down at one time, but it’s important to note that in Vancouver and Toronto, this kind of price for a down payment has been very common.
The key is to not overextend yourself because, other than the down payment for the real estate, you will also require some money to reinvest in your business. It is hence essential to analyze your stated income or grossing income in order to qualify for a mortgage.
Traditionally, the self employed could lower their taxes simply by increasing the stated expenses. In stated income mortgages, the borrower needs to make sure that they have all the following documents in place to increase their chances of getting an approval.
• Financial statements for the past two years prepared by a professional accountant.
• Business license documentation.
• Personal T1 general tax returns prepared by an accountant.
• The most recent Notice of Assessment and proof that taxes have been paid till date.
• Bank statements that show your current cash flow.
• Bank statements that show regular income.
The key is to not owe any taxes. This is probably the very first thing to check. If you do owe any taxes, pay them off immediately.
Money lenders and monocline lenders represent a much stronger option for small businesses. Depending on your credit and the way your business is registered, for example, sole proprietor or incorporated, some of these lenders can add some extra percentage to the mortgage too.
These lenders almost always look at the average salary of someone with similar experience and then decide the amount for mortgage. These lenders are a great to check out when traditional sources do not work out for small businesses. Even though the rates of interests via these means may be higher, it also means quite a bit of tax savings too. The bottom line is that although the income-qualified get the best rates, the self employed get a pretty deal too!
Naz’s speciality includes homes for sale in the Vancouver Westside, Burnaby, North Vancouver, West Vancouver, and as well as condos in Downtown Vancouver.