Qualifying for a mortgage with your Business Financials

Posted on April 27, 2023April 27, 2023 by markogel@gmail.com

(April 27, 2023)

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Congrats on finding this valuable post! You’re probably here because your bank is being difficult with you because you are self-employed…right? I know exactly how you feel, but more importantly, I know how to help you!

Most mobile specialists and mortgage brokers only look outside the walls of a business to determine qualifying income for self-employed applicants. This might be enough to get you across the finish line, but if you’re a high-producing business owner, this method of qualification is extremely limiting and inadequate. Just because you are winning the tax game, it doesn’t mean you should bow to defeat with your mortgage qualification. Many lenders have programs that qualify self-employed applicants based on their Business Financials rather than solely on their personal income declarations as stated in their Notice of Assessments.

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Business Financial Statements versus Notice of Assessments

Back in the early 2000’s lenders used to simply request the most recent two (2) years Notice of Assessments to verify income for self-employed applicants. They would essentially look to see if there were any taxes owing, and if not, they would issue approvals on the spot, regardless of what the declared income was! The lending environment back then was free wheeling and rampant. Today it’s a different story. Rather than just assuming that a business owner is declaring a low income for tax purposes, lenders will request evidence of it in the form of either T1 Generals or Business Financials. But here is where the qualification failure begins. In most cases, your banker/broker submits an application for a maximum mortgage qualification based on a 2-year average of Line 150 of your Notice of Assessment. The lender may in fact be open to qualifying you for a higher amount after reviewing your Business Financials (or T1 Generals), but have simply refrained from suggesting anything further other than what you applied for! Unless your banker/broker requests otherwise, they are simply going to adjudicate what is provided to them – they are not salespeople. Your broker/banker is the salesperson and the onus is on them to formally request an escalated adjudication for a higher qualification amount.

Why don’t all broker/banker(s) request escalated adjudications that could lead to higher qualification amounts for self-employed applicants?

There are two simple answers to this question:

1. The personally declared income on the applicant’s Notice of Assessment is simply enough for what the applicant wants to purchase, therefore, no escalation is required as the applicant is satisfied.

2. The self-employed applicant begrudgingly accepts the approved mortgage amount and adjusts their expectation for a lower-priced property. So why then doesn’t the broker/banker request for an escalated adjudication? The applicant is clearly not satisfied with their mortgage amount, this is an ideal scenario to ask for an escalation! Do it! Come on, what’s the hold up!? Ready for the answer? Here it is…because they either don’t know about it, or they do not know how to read Business Financial Statements.

Without getting into detail about the inner workings of Business Financial statements and how it can specifically propel a self-employed applicant’s qualification amount, simply be aware that it is indeed a qualification method that exists and is available…it just needs to be initiated by your banker or mortgage broker! By the way, keep checking in or subscribe to my newsletter for future posts as I will eventually write another post that details the key qualification boosters within Business Financial Statements.

Wondering how much you qualify for based on your Business Financial Statements? Call or text Marko right now at 604-800-9593, or Click Here to schedule a call to find out if any of the senior-focused solutions above are a fit for you.

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Contact Marko, he’s a Mortgage Broker!

604-800-9593 cell/text/WhatsApp | Vancouver (Click Here to schedule a call with Marko!)

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Email Me: gelo.m@mortgagecentre.com

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Mortgages for the Self Employed

Posted on December 13, 2021December 14, 2021 by markogel@gmail.com

(December 12, 2021)

Intro (pre-amble): up to 13:10 mark of podcast (Mortgages for the self employed | Let the recovery begin | Oil royalties are Up | Prime Rate stays same)

More write-offs equals tougher mortgage qualification

Did you know? Approximately 15% of Canadians are self-employed, making this an important segment in the mortgage and financing space. When it comes to self-employed individuals seeking a mortgage, there are some key things to note as this process can differ from the standard mortgage.

For self-employed individuals with an established business seeking best rate financing, the business must have a minimum two years of history. This includes self-employed applicants who own a full or part-time business in the form of sole proprietorships, incorporations, and partnerships.

In order to obtain a mortgage when self-employed, most lenders require your most recent 2 years of Personal Income Tax documents; Notice of Assessments and T1 Generals. Typically, individuals who can provide these documents – with acceptable income levels – should have little issue obtaining a mortgage product and rates equivalent to non self-employed applicants.

One primary benefit of being self-employed is the privilege of writing your income down. You enjoy less tax because you get to write-off expenses, but you (essentially) lose borrowing power. It is important to be aware of this because you can either pay less tax or have more borrowing power.

As a self-employed individual, you will fall into one of the following three categories:

You can provide 2 years worth of personal income tax documents and will qualify based on the two year average of your declared income (as disclosed on Line 150 of your Notice of Assessment). Your minimum down payment is 5% and you will receive the same insurer premiums and interest rates as non self employed applicants.
You can provide 2 years worth of personal income tax documents, but your declared income (Line 150 of your Notice of Assessment) is very low due to all the write-offs you declared. In this case, your application is further analyzed as the qualification criteria become more challenging. At this stage, Business Financial Statements or business related schedules from your T1 Generals will be examined to determine reasonability and validation pertaining to your qualifying income. Your minimum down payment increases to 10% and your insurance premiums increase, but your interest rate offerings remain competitive and uncompromised (when compared with non self-employed applicants).
You are unable to provide 2 years worth of personal income tax documents and are therefore required to increase your down payment to 20% (or possibly higher). Not only does your down payment increase, but so does your interest rate.

Here’s a list of the standard document requests from lenders for self employed applicants. You can expect to submit (at least) two or sometimes all of the following:

For incorporated businesses – two years of accountant prepared financial statements (Income Statement and Balance Sheet)
Two most recent years of Personal NOAs (Notice of Assessments)
Two most recent years of T1 Generals (with all referenced schedules)
Potentially 6-12 months of business bank statements
Statement of Account to verify that there are no taxes in arrears

Contact Marko, he’s a Mortgage Broker!

604-800-9593 direct Vancouver (Click Here to schedule a call with Marko!)

403-606-3751 direct Calgary (Click Here to schedule a call with Marko!)

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Podcast: Who’s buying real estate in North Vancouver?

Posted on April 14, 2018April 16, 2018 by markogel@gmail.com

North Van…Sellers or Buyers market?

(April 14, 2018)

Podcast Notes/Overview:

Intro (Marko): (00:00-11:01)

“North Shore” = City of North Vancouver + District of North Vancouver + West Vancouver
North Vancouver Population (city), 52,898
North Vancouver Population (district), 86,602
West Vancouver Population, 40,923
3 entry points to the North Shore: 2nd Narrows Bridge (from Highway 1), Lions Gate Bridge (from downtown), or Seabus (from Downtown)
diminishing pricing gap between single family and condo
single family detached is moving in to balanced market territory (~20%). Meanwhile, condos (~90%) and apartments (~50%) continue along in sellers market.
expect rising interest rates to become the dominating factor for real estate prices
City of North Vancouver has the 6th highest population density in Canada…4,465 people per square kilometre
As of March 2018, Detached Home ($1.7 M benchmark), Condos ($1 M benchmark), and Apartments ($600,000 benchmark)

Guest (Lisa Gordon, Macdonald Realty): (11:01 – 33:25)

about 57,000 dwellings in North Vancouver (~60% single family homes : 40% condos)
more and more units are coming through and many expect the ratio to decrease to 50% condos, and some think even 60%
2010 was a crucial year in North Vancouver…this is when detached homes hit the $1M mark
buyers need to look outside the box to address the affordability crisis. Parents are becoming more involved in their children’s real estate transaction (down payment)
~800 new dwellings slated in Lynn Valley (new condos and apartments), $900-$1000/ sq ft
listen to the podcast for more details on North Vancouver real estate supply as Lisa discusses new village type developments (Ravenwoods, 2nd Narrows bridge area, and more)

The Mortgage Minute (podcast transcript): (33:39 – 35:00)

Marko Gelo:

Owning a business can be a rewarding experience, and in Canada, the trend of newly formed business (both small and large) continues to grow and become a way of life for many. Especially, after the first 2 or 3 years…this is the minimum tenure that lenders require for your self employed income eligibility.

In other words, if you are about to start a business…make sure you qualify for a mortgage before you leave your salaried employment. Because in the lenders eyes, you are basically ineligible to qualify during the first two years of self employment. My advice to anyone about to embark into self employment…before doing so, make sure you fully exploit your pre-self-employment salary to qualify for as much credit as you possibly can…preferably mortgages or home equity lines of credit. And failing that (or additionally), rack up as high a limit as you can possibly get for a personal line of credit. Trust me, I’ve witnessed it with many clients in the past…its good to have these untapped accounts at your disposal when the business takes a bump or experiences some unexpected growing pains.

Equally important, while you’re working through your 2 year self employed tenure be aware of the following points in preparation for an optimal outcome, that is if you are intending to qualify for a mortgage once your reach your 2 year self employment anniversary:

*stay up to date and in the black with your taxes

*pay your bills on time and avoid any confrontation with your creditors, and finally

*discuss your tax planning strategies with your mortgage broker as your declared income to CCRA doesn’t necessarily translate to qualifying income for mortgages

I’ll leave you with this quote from an unknown source, “Entrepreneurship is living a few years of your life like most people won’t so you can spend the rest of your life like most people can’t.”

(Music Credit: Intro/Outro track, “the cut”, performed and produced by Marko Gelo)