Tag Archive for: Tyler Moretti

Maximizing Income vs. Using Business Write-Offs: A Balancing Act for Self-Employed Mortgage Qualification

Maximizing Income vs. Using Business Write-Offs: A Balancing Act When Qualifying for a Mortgage

If you’re self-employed and planning to buy a home, refinance, or transfer your mortgage, balancing income and tax write-offs is crucial when tax season arrives. Your financial profile plays a significant role in mortgage qualification, and understanding how lenders assess self-employed income can make a big difference in determining how much you can borrow. In this article, we’ll explore how lenders evaluate self-employed income and how your net business income impacts your mortgage eligibility.

The Importance of Income When Qualifying for a Mortgage

Higher Income Equals a Larger Loan Amount

Lenders base their mortgage approval decisions largely on income. Simply put, the more you earn, the more you can borrow. A higher reported income increases your borrowing power and enhances your chances of getting approved for the loan amount you need.

A key factor in mortgage qualification is your Gross Debt Service Ratio (GDSR)—the percentage of your income that goes toward housing costs. Lenders typically require this ratio to be no more than 39% of your income. A lower GDSR indicates financial stability and makes you a more attractive borrower. For example, if you earn $100,000 per year compared to $50,000, you’re likely to qualify for a larger mortgage and a more expensive home.

Another important metric is your Total Debt Service Ratio (TDSR), which accounts for all your debt obligations, including housing costs, credit cards, and loans. Traditional lenders usually set a maximum TDSR of 44%. A higher debt load can reduce your borrowing capacity and make mortgage approval more challenging.

The Flip Side: Write-Offs and Mortgage Qualification

While maximizing income can help you qualify for a larger mortgage, using business tax write-offs—while beneficial for reducing tax liability—can have unintended consequences. Lenders assess net business income (after deductions), and excessive write-offs can lower your reported income, potentially impacting mortgage approval.

Business Write-Offs Lower Your Net Taxable Income

For business owners, freelancers, and self-employed individuals, tax write-offs are a great tool for minimizing taxes. However, deductions such as marketing, advertising, and other business expenses reduce net business income, which is the figure lenders use to assess mortgage eligibility.

For instance, if you earn $100,000 but claim $30,000 in write-offs, your net income is $70,000. Since lenders typically average two years of self-employed income, excessive deductions can lower your mortgage qualification amount.

Striking a Balance: Maximizing Income Without Sacrificing Write-Offs

So, how do you balance reducing taxes with qualifying for a mortgage? Here are some strategies:

1. Plan Ahead for Mortgage Qualification

If you plan to buy a home in the next two years, consult with a financial advisor, accountant, and mortgage broker now. A mortgage expert can help you understand how lenders assess your income, while your accountant can develop strategies to optimize your reported income for mortgage qualification. In some cases, paying higher taxes in the short term may improve your borrowing ability.

2. Work with Professionals

Tax planning is essential for self-employed individuals. Your accountant can advise on structuring expenses and income to balance tax savings with mortgage eligibility. Financial planners can assist with home savings strategies and guide you on investment withdrawals when preparing to buy. Need suggestions on who to work with, visit our resource page.

 

Conclusion

Maximizing your income is a proven way to boost mortgage qualification. However, if you rely heavily on business write-offs to reduce taxable income, you may face challenges securing the loan amount you need. Finding the right balance between tax efficiency and mortgage approval is key. By planning ahead and working with financial professionals, you can navigate these challenges and confidently prepare for homeownership.

Have questions? Contact Us—we’re here to help! Or click here to Apply Now.

 

Updates: BC Tenancy Act & 30 Year Amortizations First Time Buyers

BC Tenancy Act Changes & 30-Year Amortizations for First-Time Buyers

Recent government policy changes have significantly impacted the real estate and mortgage landscape in British Columbia. These changes, which took effect in July and August 2024, are crucial for landlords, tenants, and home buyers to understand. The amendments to the BC Tenancy Act and the new rules for First-Time Home Buyer amortizations are particularly noteworthy. Read on to learn more about these two significant updates.

BC Tenancy Act Key Changes

Effective July 18, 2024, several important changes to the BC Tenancy Act have been implemented. Here’s what you need to know:

  1. RTB Landlords WebPortal: Landlords must now register all notices to end a tenancy on an online portal and include the reason for termination.
  2. 120-Day Notice to Tenants: The notice period for tenants to vacate a property for owner occupation has increased from 2 months to 4 months.
    • Notice starts on the first day of the rental period.
    • Example: If notice is given on July 22, tenants must vacate by December 1.
  3. Increased Compensation: Tenants will receive 2 months’ free rent, up from the previous 1 month. Additionally, if the property is not used as stated for 12 months after the tenancy ends, the landlord or buyer owes the tenant 12 months’ rent.
  4. Increased Time to Dispute: Tenants now have 30 days to dispute a notice, up from the previous 2 weeks.

Considerations for Buyers:

  • Mortgage Interest Rate Holds: Rate holds currently last 90-120 days. When buying a tenanted property, work with your mortgage broker or lender to ensure your approval will hold until completion.
  • Owner-Occupied Purchase: When buying a tenanted property that will be your principal residence, be aware that the 120-day notice will postpone your move-in date.
  • Investor Impact: Selling tenanted properties will now involve additional considerations for landlords.

For more information, visit the Tenancy Act Changes.

If you’re looking to purchase a tenanted home, consult your REALTOR® and mortgage broker.

First-Time Home Buyers: 30-Year Amortization

Starting August 1, 2024, first-time homebuyers purchasing newly constructed homes priced under $1 million can benefit from 30-year amortizations. This change applies to insured mortgages, with a minimum down payment requirement of 5% on the first $500,000 and 10% on the balance. This update aims to increase buying power for eligible purchasers.

Eligibility Criteria:

To be considered a first-time homebuyer, at least one borrower on the application must meet one of the following criteria:

  • The borrower has never purchased a home before.
  • In the last 4 years, the borrower has not occupied a home as a principal residence that they or their current spouse/common-law partner owned.
  • The borrower recently experienced the breakdown of a marriage or common-law partnership.

First-time homebuyers should connect with their mortgage professional to update their application and determine how the increased amortization impacts their pre-qualification.

For more details, visit the CRA 30-Year Mortgage for First-Time Home Buyers.

Stay Updated

As mortgage regulations continue to evolve, we remain committed to keeping you informed with the latest information. For personalized advice and to discuss your specific situation, call us today at 250-753-2242.

Zoning Changes: City of Nanaimo Responds to Bill 44

Bill 44 – zoning changes

The Provincial Budget announced in April includes Bill 44-Small Scale Multi Unit Housing (SSMUH) initiative.  Municipalities in BC had to take action and announce their zoning bylaw changes by June 30, 2024.

On June 18, 2024 the City of Nanaimo’s response was announced.

What is Zoning?

Zoning refers to designations that are set out by a city or regional district that outline what is and isn’t allowed, including conditions for development and land use.  Previously, the bulk of Nanaimo’s residential zoning was R1 – this allowed for one single residential dwelling, or for two principal dwellings on certain corner lots.  R1 zoning has been changed to R5 for the most part; R5 allows for development of small scale multi family residential dwellings of up to 3-4 units.  Many homeowners can now add a secondary suite, and a carriage house.

Click here to check out this City of Nanaimo Zoning Map. 

Other Changes

Among the changes to zoning types, Nanaimo now recognizes suites in duplexes, row houses and townhouses.  Lot size restrictions for secondary suites are removed, and R5 zoning have decreased front yard setbacks.  Units zoned R14 Old City Low Density, allow for fourplexes, and have special density provisions if the integrity of existing homes are being retained.  For specific details and questions please contact the City of Nanaimo.

The Province’s action of SSMUH addresses the ongoing housing shortage being faced by British Columbians. With multiple programs available, homeowners should ensure they are aware of the tools and resources at their disposal.  The Secondary Suite Incentive is available for those who are building a suite in their principal residence.  This is a $40,000 forgivable loan that assists homeowners with the cost of renovations. The rental suite must be rented at below market rents for 5 years.  To find out what ‘below market rents’ means in your area, please click Here. 

Our May Blog Post has the basics on the Secondary Suite Initiative. 

For further details of the Suite Assistance Initiative, visit BC Housing Assistance – Suite Initiative.

Our team is here to answer any questions you have. We will help determine the options for turning equity into cashflow. Call us 250-753-2242.