Being self-employed is the dream of a lot of people these days especially if for those whose professions are reliant on their own productivity. People with all sorts of different skills ranging from carpentry to engineering seek the possibility of being self-employed. The tax advantages can be very lucrative in that the deductions from income can reduce your tax bracket considerably. So what does this mean when you want to get a mortgage?
First let us look at the two different types of self-employment that can affect a mortgage.
First is the type referred to by Revenue Canada as sole proprietors. Sole proprietors are basically someone who is working for themselves and have not incorporated a company. In this case lenders and CMHC will consider the net amount your report for income and allow a 15% increase in your income for a self-employed mortgage for the purpose of qualifying for the mortgage. This can be very useful as a lot of things are written off in your income that are added back with this process.
The second type of self-employment is if you have incorporated and become a registered company. This can actually be a disadvantage because usually in this scenario your accountant will use the T4 method to report your income. When the accountant reports income by T4 that is usually the number that lenders and CMHC will allow us to show for income. They will allow a two year average from the notice of assessment as welland they do make some allowance for what is called claw backs from your business statements for such things as business use of home or car payments.
What you will usually find when looking for a self-employed mortgage is that your account with Revenue Canada needs to be up to date. CMHC and lenders will not lend you money for a self-employed mortgage if you have outstanding balances with Revenue Canada. The reason for that is that regardless of who has your mortgage Revenue Canada can supersede that mortgage and foreclose on your house. You can also expect that to get a self-employed mortgage through the regular lenders you will usually need a minimum of ten percent down payment.
Self-employed mortgages are also available through private lenders, they look at your income differently than regular lenders as they are more concerned that your business has a steady cash flow that will allow you to make your mortgage payments. Because they are more lenient than regular lenders they require a higher down payment and while not as concerned about your CRA balance they still want to see a reasonable ability to pay then as well.
The Brokers for Life team is skilled in the self-employed market and we have several lenders who will accept these files. Call us today and we can review what lender will best suit your self-employed mortgage.
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