Self Employed Mortgage
Being self employed can be very rewarding. You can work to your own schedule, be your own boss, run your business the way you want and be responsible for your own successes and failures. Many business owners wouldn’t trade self employment for the world and sometimes they are in need of a mortgage.
Here are some reasons why a business owner may need a mortgage.
Business purposes
• Pay off some business debts
• Renovate their offices
• Buy some business equipment
Personal reasons
• Move to a new home,
• Renovate
• Pay off debts
• Invest
• Improve cash flow
• Perhaps they’ve had a bad year and just need money to keep the family afloat during slow times
And more…
Along with the perks of running your own business, you may enjoy great success one month and then fall short the next, very different from someone who is on a steady salary or hourly wage with “standard” income. This makes it harder to provide steady predictable income to a lending institution when applying for a mortgage.
Many lenders and mortgage insurers understand this and have lending programs geared to people who are in this situation. No doubt the economic climate has not made it easier for those outside the “box”, but there are alternatives. In all cases, you will be asked to provide proof of the existence of the business by at least one of several means –
• Master Business License
• Articles of Incorporation, if incorporated
• GST/HST return
• Accountant prepared taxes with statement of business
• Audited tax returns
Purchasing using the Alt A self employed program
Program through mortgage insurers using a “reasonability” test of the industry your business is in to determine the amount of income you may have. You will need 10% down payment and a good credit history.
Refinancing with a prime lender
If you are refinancing, you may need more equity in your property and a reasonability test may still apply.
When a business owners tax return, business financial statements and records of business activities can’t supply enough net income and a reasonability test won’t work to support the mortgage application, or if there are credit challenges, we can source your mortgage through “alternative” lending institutions.
Alternative Lenders
These lenders may use “non traditional” methods of verifying cash flow such as bank statements, contracts and invoices. There most likely will be higher interest rates, broker and lender fees however, these costs are an excellent trade off for enjoying the tax opportunities afforded to self employed individuals. You may need more down payment or equity in the home than when using a prime lender. These lenders are more sensitive to the story behind the facts and may provide more flexibility in expectations.
Private Lenders
And last but not least, we have the private mortgage markets. These are lenders who will loan mortgage money when there are more “difficult” or “riskier” situations. Often there are credit problems, property issues and/or many situational issues. Since these lenders charge higher rates and fees they are usually used as a short-term solution while the issues are being fixed. Such as undergoing credit repair.
But regardless of what the general options are, every situation is different and as your mortgage agent I will tailor make a plan that best suits your needs. Mortgage agents and brokers work with many small business owners to find the best mortgage solution for their clients individual situation.
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Whether you are buying your very first home, upsizing, downsizing, or refinancing, I can find the right fit for your unique financial situation.
