Today more than ever people are turning to being self employed. One thing an economic recession has given people, is the opportunity to try new things. When laid of workers can’t find jobs, they sometimes invest in themselves and take control of their future. Not being restrained and dependent on bosses, they have time to start their own businesses and companies. Many fulfill their dreams and aspirations of being the BOSS.
No matter what type of occupation you have, we all have the same wants and dreams. Owning a place you can call your home is on many wish lists. What we do for a living however does affect that dream. Particularly with business owners who expense a lot of day to day things to minimize taxes. In a way its a double edged sword. If you claim more income, you pay more tax, but qualify for a larger loan. If you expense more things your income is lower and you pay less tax, but also make less verifiable income.
There are options for those individuals. Depending on credit score, down payment amount, loan amount and verifiable income these buyers can purchase the same homes as those with standard employement. The required documentation is different, and the CMHC premium is higher but the reality of home ownership is possible. Some types of applications need higher credit scores and larger down payments.
There are basically 3 types of programs for self employed buyers:
Standard Documentation: – Income is taken from line 150 of your Notice of Assessment. Depending on lender +15% can be added for the fact you have cross expenses for business and life like cell phone, car, and internet. 2 or 3 year average is taken when large fluctuations are shown from year to year. T1 General may also be required, but has to be prepared by 3rd party. CMHC premium is usually added to insured high ratio mortgages
Light Documentation:- In this type of application the buyer can state their income. It has to be reasonable for job type and industry. Notice of Assessment is required no taxes are owing, or proof that they have been paid.
Stated Income:- In this application, the lender is usually an equity lender. They will require 25%-35% percent down. These lenders will accept a lower credit score and very little documentation. Proof of business is required like Master Business Lic. Sometimes websites and invoices are used to prove activity and existence if 3 months worth of bank statements cant be provided. The buyers are required to sign a letter stating their annual income along with other conditions.
Other documents that will be needed for most of the applications are:
Articles of Incorporation or Master Business License
Purchase Agreement and MLS Listing
Proof of Down Payment with 3 months of bank statements. Transactions over $2,000 need to be explained unless a regular occurrence.
T1 Generals, Notice of Assessment or Statements of Business Activity (only for the first 2 types of applications)
Having your documentation ready before you decide to purchase is crucial to a smooth and speedy purchase. Especially with Business for Self applications, as they require more scrutiny. Make sure you speak with your agent about what exactly your situation will require. Happy home shopping.