This is probably the biggest positive mortgage lending change in 10 years. A major lender has just announced a new program for self-employed individuals!
For the last several years, mortgage lenders were not including any business income when qualifying for a mortgage.
In other words, if you owned a business – let’s say a computer store – and your business made $400,000 net income per year, but you only needed to pay yourself $100,000, you’d pay business income tax on that business income (for those who think businesses don’t pay tax, they certainly do). You’d also pay personal income tax on the $100,000 that you drew out of the corporation.
So, how much does this person really earn? Most of us would say $400,000. But banks would only use the $100,000 that was pulled out of the corporation and exclude the other $300,000. It’s like the $300,000 didn’t exist. Nice, huh?
This is why the self-employed have been facing challenges when qualifying for a mortgage over the past 5-7 years. Mortgage lending had become illogical.
Everyone – including lawyers, doctors, accountants, retail store owners, consultants, etc – couldn’t qualify under these rules. Common sense had disappeared.
Self-employed people in business for 10-15 years were being penalized, as they had reduced their personal expenses and didn’t have to pull out all that business income to survive.
I’ve seen too many clients go through the third degree just to qualify for a mortgage, which should have been a slam dunk. Clients buying a $1million home with $500,000 down were being declined when they could clearly qualify but didn’t fit into the box.
Don’t get me wrong, I found solutions for them, but it wasn’t as easy as it should have been.
Thanks to innovative new products like this, my self-employed clients will have a much easier time qualifying for a mortgage – and at great rates. That’s a big win!
Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.
Steve Garganis: 416-224-0114; firstname.lastname@example.org
As an industry insider, Steve will share info that the BANKS don't want you to know. Steve has appeared on TV's Global Morning News, CBC's "Our Toronto" and The Real Life TV show. He's also been quoted in several newspapers such as the Globe and Mail, The Toronto Star, The Vancouver Sun, The Star Phoenix, etc.