Understanding Mortgages for Entrepreneurs

Hard to believe, but true. If you work independently or own a business yourself, then you know that it pays to keep your taxable income as low as possible. An astute business owner with a good accountant will be working hard to minimize taxable income for the business: a smart financial strategy. But according to traditional lending formulas – this business strategy could flag you as a high-risk borrower as lenders really have no certain way to confirm your actual income and repayment ability. Your income – at least on paper – may not support the mortgage payments, and you could be penalized for smart income management.

Small business owners are usually expected to provide detailed financial statements fortheir business for the past two years. And what picture do those statements paint for the lenders?  That can be a problem.

Many lenders are still most comfortable with the traditional parameters for verifying employment and income. An employment letter and a steady stream of pay stubs are the simplest methods of assessing your ability to service the mortgage debt.

Without an established stream of pay stubs from an employer, lenders have none of the traditional assurances that you can meet your mortgage obligations. You may be expected to undergo a long and complicated process to prove your ability to service your debt. Lenders want to verify your employment and your income – not a simple task for someone who is self-employed. Lenders are also looking ahead; they will want some evidence that payments can be made for the life of the mortgage – not just over the next year.

Thank goodness that times have changed for the self-employed!

These days, self-employed homebuyers have the same access to mortgages as their salaried counterparts. It doesn’t matter what the nature of your income structure: whether you work on contract, whether your work is seasonal, or whether you’re a small business owner or an independent professional.

For the self-employed – who build their own success on understanding the needs of their customers – the new mortgages designed for them are good business. And they’re also welcome news to the growing number of Canadianswho are building their own success in their own way.

Travis Kulasekere is a Calgary Mortgage Broker with Quantus Mortgage Solutions