In this episode or Real 101: The Home Buying & Selling Show, Mortgage Broker Tracey Brock talks about solutions for business-for-self home buyers.
What do Lenders Look at When Business-for-Self Home Buyers Try to Get a Mortgage?
The first thing lenders would want to know is how long has the business been operating. The minimum is two years, although there are some rare exceptions. They will also look at the income business-for-self home buyers are claiming (income that you pay taxes on) on your notice of assessment and finally the type of business you are in.
When it comes to the type of business, lenders will often look differently at sole proprietors and corporations and their claimed income. In addition, lenders will look differently at a claimed income if you’re in one profession, compared to another (cab driver vs real estate agent, for example).
In order to qualify you for a mortgage, lenders will look at your claimed income. However, if the gross claimed income is $100,000, but after expenses you only earned $20,000, the lender will look at the stated income. So, they will first use the net claimed income ($20,000) and if the stated income is reasonable, the buyer will qualify.
If the claimed income doesn’t support the purchase price of the home, business-for-self home buyers have to do a stated income. The majority of lenders will still insure whether you have a minimum down payment or a 25% down payment, but don’t necessarily pass this cost over to the borrower.
In regards to the stated income, the main criteria of Genworth and Canada Guaranty is that it’s reasonable. In other words, business-for-self home buyers cannot have a $20,000 claimed income and say their income is actually 80,000. These organizations will then look at the type of business and what you’re grossing up. Typically, they only accept 50% gross ups.
What about the Down Payment and Insurance Premiums for Business-for-Self Home Buyers?
If you’re claiming enough income to do the mortgage in a conventional manner, you can usually qualify for 5% down. However, for a statement income program, you must have a minimum down payment of 10%.
Insurance premiums under a stated income are also higher than the traditional for a salaried employee on 10% down payment. However, this fluctuates depending on how much down payment you have.
Watch this episode to learn more about solutions for business-for-self home buyers.
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