08/05/2022
Becoming incorporated means business owners can take advantage of tax benefits, but there are some consequences to doing this when it comes to applying for mortgages. Well, since the bank uses your tax returns to determine your income as a self-employed individual, writing off too much of your business expenses to enter a lower tax bracket will lower the mortgage amount you are eligible for because of your declared income is lower.
A common misconception is that banks will not accept self-employed income or make it nearly impossible for self-employed people to qualify for a mortgage. According to WOWA, 15% of Cdn workforce is self-employed in 2018, and 44% of that amount was self-incorporated so banks have adjusted to these changes in the workforce. While the requirements may be stricter, several banks have mortgage products tailored toward self-employed individuals, and if they don’t, they will likely consider the mortgage application based on income, future revenue, credit, LTV, debt ratios and down payment amount.
While it is highly advised to offer a larger down payment as self-employed, you do have other options. A larger down payment means better flexibility with the rates, and no need for mortgage default insurance. You can borrow up to 95% LTV with CMHC insurance (and proving your income) or 90% with private insurers (without income verification), but more about that and stated incomes in my next post!
