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Are you self-employed?
Every Windrose Group Mortgage Professional is also a business owner and fully understands the challenges or concerns you might have when it comes to qualifying for a mortgage as a self-employed individual. According to Intuit, 45% of Canadians will be self-employed by 2020 – a large and growing demographic. Why is it that employees can easily get a mortgage but as a business owner, you have challenges or limitations?
Here is why:
- You may have multiple “write-offs” on your tax return that reduces your net taxable income
- No guarantee of a consistent income week after week
- The failure rate of businesses is 30% in the first 5 years. This makes lenders nervous about loaning a mortgage for hundreds of thousands of dollars.
As an entrepreneur and business owner, you benefit from income tax credits and great reductions and write-offs on your personal tax return. This is a great advantage when it comes to the actual amount of tax you pay but the disadvantage is that your net income tends to be low. You may have already experienced how this can impact qualifying for loans and mortgages because, for a traditional mortgage, lenders will use your net taxable income only to qualify you (average of the last two years Line 150 of your tax return).
This unfortunately usually results in significantly reducing your borrowing power. This is one of those trade-offs we experience as entrepreneurs, we benefit significantly by lowering our tax burden, but it may result in some slightly higher rates or fees when borrowing money. For most us, this trade-off is still worth it. It means saving thousands of dollars in taxes versus a small premium on borrowing money!