Self Employed Borrowers

Hi Everyone. Today I wanted to share some information with you about what programs are in place with TD Canada Trust for self employed individuals looking to qualify for a mortgage. Since the new mortgage rules and even more changes to the insured stated income program, I wanted to break it down for you so that you know exactly what TD and other lenders may ask you for prior to getting a mortgage. With numerous write-offs and different ways to pay yourself, TD has programs in place for those who are unable to provide traditional income confirmation.

Income Gross-Up or Eligible Add Backs
As a self-employed borrower, TD allows you to gross-up your 2 year average income from line 150 on your Notice of Assessment by 15% or you may opt to provide 2 years financial statements prepared by a licensed accountant to support a higher income level where eligible add backs exceed the 15% gross-up.  Eligible add backs can include things like business use of home, motor vehicle expenses, and capital cost allowance and must be approved by TD. One thing to note is that if you are incorporated, you are not eligible for the 15% gross up, since you receive a salary from the Corporation. In this scenario you must qualify using your 2 year average from line 150 of your Notice of Assessment.

Self-stated Income/Equity Lending
Using self stated income is exactly what it sounds like. You state your income and we take your word. Now depending on the loan to value, up to and including 75%, there may be other criteria you have to meet including minimum beacon score, proof of 3 year business for self, no previous bankruptcies, no current debt arrears, minimum 3 year credit bureau history etc. Keep in mind that the income you state must be reasonable according to industry standards and like every other credit application, your total debt service ratio and gross debt service ratio should not exceed 40% and 32% respectively. To determine your total debt service ratio, click here. One key point I should note is that non-owner occupied properties are ineligible under this program. To confirm 3 years business for self, TD may ask for things like GST returns, audited financial statements or proof of business account.

Insured stated income program
Applicants under this program are self-employed borrowers who have difficulty providing documentation for their current income level and do not have at least 35% equity. These are often people who have recently begun to work for themselves. On April 9, CMHC made the following changes to the Insured Business for Self program:

• As a self employed borrower, you must be able to demonstrate that you have experience working in the same field for a minimum of 2 years. This can include time spent working as non self-employed in the same field. 
• If you have been self-employed for more than 3 years, you are not eligible under this program and must provide traditional proof of income.
• Commissioned applicants are not eligible for the insured business for self program.
• Purchasers must provide at least 10% down payment and those who wish to refinance will be limited to 85% loan to value.

Under this program, the same criteria mentioned in section 2 of my blog must also be met. To offset the additional risk, the insured Business for Self program comes with higher insurance premiums. Refer to CMHC Insurance premiums for more information.

Remember, no matter what type of mortgage financing you are looking for, it makes sense to speak to me first. I am available outside of normal banking hours, weekends and evenings to suit your schedule.

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

TAX PLANNING WITH THE SELF-EMPLOYED OR BUSINESS OWNER

Self-employed people or business owners have a great edge in tax planning over the employed.  They get to deduct expenses from their income and pay less tax later, whereas the employed do not get to deduct expenses from their income and have to pay tax on every pay cheque.

Here are the many ways for the self-employed and business owner to save on tax:

• Structuring
• Deducting business expenses
• Use dividends
• Make spouses and dependents over 18 shareholders of the corporation
• Pay family members wages
• Utilize shareholder loans
• Utilize Private Health Service Plans (PHSPs)
• Always stay under the “Small Business Deduction Limit”

I’ll be writing more about these tax saving strategies for the self-employed and business owners in my next blogs.  Check back here next week!