Having your own business has it’s advantages. Not only are you your own boss, but you are in control of your financial destiny. You are able to acquire a self-employed mortgage to build something, help others and in turn you can enjoy a more flexible lifestyle than most.
When it comes to finances, as a business owner, it is well known that business owners often report lower income on paper as a result of tax planning strategies. Because of this, it can sometimes be challenging to obtain financing. Since your income, as a self-employed individual is significantly reduced on paper. Being self-employed doesn’t always fit very well in the conventional lending ‘box”.
In order to fit into this box, there is a certain criteria that individuals must meet. Traditionally, documents that self-employed individuals have to provide for the lender are two most recent years of tax returns.
We all know that tax returns for self-employed do not always accurately reflect the actual take-home that a self-employed person has. However, the proverbial “box” requires that tax returns show the required income to justify the mortgage they are applying for.
So how does one qualify for a mortgage when self-employed ?
That’s where a mortgage broker comes in. That’s where I come in.
Perhaps you have heard the reference to Mortgage Gladiators when referring to our brokerage? The “Gladiator” thing is not just a catchy marketing title.. It goes hand in hand with what my brokerage stands for and what I am all about. I attack every day, every deal, every obstacle like it’s nobody’s business.. Like a Gladiator….And so, when I hear about hard working business professionals being declined for a mortgage, I make it my mission to help them in any way I can.
Our brokerage has made it part of of our mission to learn everything we can about our the products available for self-employed individuals and build relationships with lending institutions who specialize in these programs so that we can serve you better.
A self-employed mortgage require a strategy
The following points are suggestions on strategies on how to plan ahead and be prepared when you, as someone who is self-employed, are ready to move forward in arranging a mortgage for a property purchase.
- The easiest way to plan is to write off fewer expenses in the two years leading up to the property purchase. Yes, this means you will pay more personal taxes. However, your income will be higher which will easily qualify you for the mortgage amount that you are looking for. We can look at your full application in advance and let you know what income you will need to declare in order to be approved by traditional means.
- Offer a larger down payment. Lenders are somewhat limited to insurer guidelines when there is less than 20% down payment on a property purchase. But if you have more than 20% down payment, depending on the lender, their flexibility increases, by working with a broker who has experience with positioning deals and working with self-employed mortgages.
- Private financing, although an expensive option, could offer at least a temporary solution in providing the solution you are looking for. Be prepared for higher rates there will be lender/brokerage fees. However, you could be in a private mortgage for 12 months or even less, whereby giving yourself time to improve your credit (if need be) or topping off a two-year self-employed period to set yourself up to show stated income to the lender. The whole point of private financing is to use it as a short term solution for a long term plan.
- Ask us about Stated Income. There are options with some lenders to state your income. An experienced Mortgage Professional will know what documents such as bank statements, showing consistent deposits, will be requested by the lender. Specific requirements are outlined in our Guide to Stated Income – Mortgages for Self-Employed Individuals.
Being self-employed does not mean that you always need to show enough income on your income tax in order to qualify for a self-employed mortgage. There are many factors involved in showing income when you are self-employed. And every lender has different guidelines as to how they view self-employment. If you are self-employed, plan accordingly and make sure you are well set up to show that the lender that you are a desirable candidate for a mortgage.