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BUSINES TIPS

Minimal Verifiable Income: Mortgages for Entrepreneurs
Entrepreneurs enjoy many benefits from running their own business. However, easy access to mortgage financing is not always one of them.

Being a business owner myself, I experience first hand the multiple advantages associated with running your own operation. A primary advantage is the tax laws in place which allow entrepreneurs the ability to legally reduce your taxable earnings by writing off any expenses related to operating and marketing your business.

When applying for any type of mortgage, this very same primary advantage becomes your primary obstacle. Lenders like to see documentation providing strong current income, a long history of job stability, and an indication that this steady income will continue. Total earnings before tax deductions are used for employee qualification purposes whereas lenders do not take the business owner's total earnings into account. Instead, only your taxable earnings are considered. This amount is stated on line 150 of your Notice of Assessment.

As a result of extreme income reduction due to allowable expenses, in most cases your taxable income is minimal. Based on this minimal taxable income and existing debt, the mortgage lender uses a standard equation to determine your maximum approvable mortgage amount.

As an example, let's say your business produced $150,000 in total earnings, but after deducting all business expenses, your taxable income was $24,000. Based on the standard equation, fully discounted fixed rates, property taxes, and no outstanding debt, this taxable income would garnish a mere $67,000 mortgage approval. As you can see, this gives you no choice in the home marketplace. Who are they to say what you can and cannot afford?

With the ever changing mortgage marketplace, lenders are realizing that the growing number of entrepreneurial borrowers is astonishing. Lenders now offer affordable, fully discounted, and accessible mortgage financing to today's entrepreneurs. These new mortgage programs cater to business owners, self employed and commissioned borrowers who are unable to provide traditional proof of income. Confirmation of income and employment is exchanged for, but not limited to, proof of business registration, articles of incorporation, proof of commissioned income. Qualification emphasis is placed on the borrower's strong credit rating.

As an entrepreneur, the maximum mortgage amount you qualify for is left up to you. You decide. Your maximum purchase price is determined by your down payment and your own judgment of your ability to make mortgage payments.

Using the same taxable income mentioned above of $24,000, the entrepreneurial borrower wishing to provide a $10,000 down payment now has the ability to purchase a $200,000 home. On a $200,000 purchase price, $10,000 equates to only a 5% down payment. If this same borrower wishes to provide a $20,000 down payment, the entrepreneur is now able to purchase up to $400,000. Again, only 5% down payment is required. This provides endless fully discounted and affordable choices for the entrepreneur with absolutely no verifiable income. You, and only you, should decide what you can and cannot afford.

Nelson Abelha, AMP, is Mortgage Broker, President of VERICO Strategic Mortgages Inc., specialist in Residential Mortgages for individuals not able to provide traditional proof of income. He can be reached at (905) 545-2838 or nelson@strategicmortgages.ca.

Copyright 2007 Nelson Abelha

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