If you are self employed what is my real income and how can I qualify for my mortgage?

Living in Calgary my day to day  life I am surrounded by the self-employed.  As I grew up I came to understand that working for my own dreams instead of making someone else’s come true was at the very core of my being.  I have come to believe that it is the best way to flourish in life, and one of the reasons why I work as a mortgage broker.  This is a reason to get up in the morning.  A reason to smile, a reason to provide great customer service as you are building it for yourself.  Yes you get the benefits of making your own hours, taking vacations whenever you want and not having to answer to a boss.  However the downfall of this is that you have the frustrations of making your own hours, taking vacations and not having to answer to yourself!  Then there is the financing part of things, and what do you pay yourself in this Alberta marketplace with the cost of living?

However as a Calgary Mortgage broker I do see some business owners believe if their company makes 12,000 a month that that is what kind of income they are making and the bank should use this to qualify them.  This is not always the case, it’s a little more complicated that that if the company is incorporated.  No longer is it just about finding you the best mortgage rates, rather its about proving you make enough to qualify for the home mortgage.

Having two years history of income goes a long way to pave the road with success.   Lenders like to you at something for more than 6 months or 1 year and change.  Then again making 16,000 one year then showing 78,000 the next is going to be harder to get your mortgage approved.

Calgary and Canada wide, Banks and lenders realized that self-employed borrowers provide a chance for success and stability.  As a result there are different programs that are available for self-employed borrowers.  One such program is the ability to gross up your income, another is to add back certain expenses and the other is a stated income. 

Here they are explained. 

Gross up your income (Line 150):

The benefit to using this method is that there is no added Canada Guarantee/CMHC/Genworth premiums.

Do this by looking on your CRA Notice of Assessment for the most recent year the top line is usually Line 150.  This shows your gross taxable income for the previous year.  Gross up then average the last two years on this to determine your income.

Add backs:

If the gross up is not enough, then some lenders they will allow us to review your tax returns along with the corresponding CRA Notice of Assessment.  Business use of a home, Motor Vehicle expenses, Capital Cost Account, and Depreciation of Amortization  expenses can be added back to your Line 150.  In many cases, using add-backs often give us a higher income than just the grossing up line 150.  The benefit to this method is that the resulting income is usually higher than grossing up and there are still no added CMHC/Genworth premiums.

Stated Income:

The last method that is available is self-declaring your income.  The purpose of this program is to offer a method for people to use an income that wouldn't typically be acceptable by a lender.   There is a reasonability assessment for the income being used.  Which means if has to pass the sniff test for you to get your home mortgage.

The disadvantage is that unlike the other two options you will need 10% down for a down payment.  Also if the mortgage is high ratio (above 75% of the house value or purchase price) then the Canada Guarantee/CMHC/Genworth premiums are slightly higher.

Why should you use You-Mortgage and Mortgage Architect for your next mortgage as a self-employed buyer?

Our goal is to seek out the cheapest low rate mortgage, most inexpensive and effective way for you to get approved for mortgage financing as a self employed borrower. Then we will look at the different mortgage products that are being offered as each lender is different, with changes that could cost you money if we don’t take your goals into the equation.   Just don’t play the waiting game with us and drag your feet on the source documents and your tax documents it makes finding the perfect home for you a little tougher.   Provide as much as you can.  It’s better to have too much than not enough and have me bugging you for more information.   Yes I will provide a tick sheet should you have questions on getting your home mortgage with self employed income.  

Call or text us today so we can have a look.  403-807-8779  An Alberta Mortgage Broker is here to help you.