Self Employed: Mortgages
Being self-employed has many advantages, like setting your own schedule and being your own boss. You also have the advantage to write off items to decrease your taxable income. This is great when it comes time to pay the Government, but can create challenges when you are planning on borrowing. There is a major advantage to working with a broker who is well versed in Business for Self (BFS) programs available.
The Gold Standard for Self-Employed
The most universal method to calculating self-employed individuals income is by taking a 2 year average. To achieve ideal interest rates, a 2-year average of your NET income is used. That means your gross income is not the amount being used to calculate your capacity for a mortgage. All write-offs and deductions are used to calculate your Net Income. If your Net income has been declining, the lower amount is used for qualification purposes. In an ideal world, real estate transactions would be planned a few years in advance–allowing for pre-planning with your accountant.
Traditional Lending – New to BFS
There are programs available through traditional lenders for clients who have less than 2 years self-employed. The requirements include having to have worked in the same industry as before they became self-employed. The client needs to be able to show that they have a history in the industry to qualify for this program.
Subprime lenders offer solutions to a variety of BFS individuals. Clients could be new to their industry, or well established but their past years net income isn’t an accurate reflection of current income. Regardless, there are Subprime lenders who might be able to help. Subprime lenders will complete a review of your business bank statements for the past 6-12 months. Lenders review deposits and deduct expenses to arrive at an income amount that will be used for qualification. Having flexibility in income qualification does come with additional costs. Interest rates are generally 1-2% higher than a traditional lender, plus there is a lender fee.
Why use a Mortgage Broker
Mortgage Brokers have access to a variety of programs and options for self-employed individuals. If you’re working with clients who are BFS it’s important they know what’s available. Brokers have access to multiple programs and lenders, and can ensure that client’s buying power is at it’s full potential. This gives the client an advantage; providing them with multiple possible solutions.
For more information please call Kevin, Jason or Blaire today 250-753-2242
Fill out our Online Mortgage Application