Self-employed and thinking of buying?

Hard to believe but another amazing week has flown by andnow we’re already into the month of October. A topic that I get askedfrequently about is first time buyers that are self-employed. Inother words, individuals that own their own registered company or professionssuch as independent copy-writers or truck drivers that are looking to buy ahome.  If it sounds like you fit in one of these categories then here area couple suggestions to help you get closer to qualifying for a mortgage.

First, whether you have your own registered company or notplease file both Federal and Provincial income taxes (personal and business) ontime. I know it sounds very basic but I’ve seen many mortgages both residentialand commercial either delayed or cancelled because the client has not filed. Ifyou are thinking of buying in the near future and your 2010 Notice ofAssessments show that you owe balance to either Government please pay offthe balance and keep proof of payment. More and more banks are asking to seethis documented.

Next, figuring out your buying capacity as a self-employedperson is the next order of business. In Canada, we can pin-point your incomebased on an average of 2 years notice of assessment and/or having a look atyour financial statements (specifically gross annual sales) for your company.The general rule of thumb is that figuring out your income needs to make sense.Banks typically balance between personal and business assessments to figure outone’s overall personal income. As a self-employed individual, we generateincome but we tend to expense as much as possible, hence why our Notice ofAssessments can show low declared income. Some of those expenses can bemade with a registered company.

Finally, if your income is solely based on an average ofyour Notice of Assessments then you can put a minimum of 5% down. Ifhowever, your income is qualified on your Notice of Assessments andbusiness’ financial statements or “self-declared sales” then you will berequired to put 10% down. This rule applies to all banks in Canada.

If you have any specific questions you’d like to discuss innext week’s article please feel free to email me.