Many things affect a homebuyer residential mortgage — the process of the application contains many safeguards to protect lenders and borrowers alike. A self-employed individual or business owner has unique challenges. A homebuyer residential mortgage falls under a different approval process for the self-employed or business owner.
Don’t Forget to Declare Ownership
Business owners, in many cases, take a salary from the business they run, and a T-4 reflects their earnings for tax purposes. In the application process, a lender will review the form, but the big mistake here is the failure to declare ownership of the business. This causes complications in the homebuyer residential mortgage approval process.
Disclosure is vital during the homebuyer residential mortgage approval process, and reporting a stake in a business is something many don’t do. A lack of understanding is the problem here. Bad advice from an accountant can contribute to the lack of exposure to business assets.
Mortgage underwriters have been down this road before, and they will detect any discrepancies in the application. When a business owner submits a T-4, they believe they are an average borrower, but this is not the case. If you own a percentage of a business that exceeds a certain threshold, then you are considered a self-employed borrower.
Obey the Golden Rule
Owning more than 25% of a business classifies a homebuyer as self-employed. A corporate tax return will be required once business ownership is established before the underwriter can grant a homebuyer residential mortgage. The corporate tax return will demonstrate profit and loss, and that can be impactful when applying for a mortgage.
How Profit and Loss Affect Mortgage Approval
A loss for the business is a loss for a borrower as it will affect the earnings of the borrower. It works like this; the business records a loss in the previous year. Then, it’s subtracted from the earnings of the borrower.
Depending on the percentage of business ownership, the loss will be directly proportionate to the stake of ownership of the business. If you own 100% of the business and lose $20,000 the previous year, that amount is a deduction from your yearly earnings.
Conversely, if you own 100% of a company and make $20,000 in profits the previous year, it will be added to the income on your T-4.
Your Mortgage Broker Works for You
To get a prompt approval for a homebuyer residential mortgage, the borrower must be completely honest about their financial situation. Mortgage underwriters have many sophisticated tools to assist them in the approval process. The tools will reveal a great many things, and if you are less than honest with your broker, it will be apparent upon application review.
As a business owner, you will be forced to delay a home purchase if you are reporting a loss in the previous tax year. Seek advice from a mortgage broker and a reputable tax accountant for the best course of action before you apply for a homebuyer residential mortgage. The strength of the team you assemble will be the difference in approval and disappointment when it comes time to buy a house.
To learn more about how mortgage status is affected by your business’s profit, call Northwood Mortgage™ at 416-969-8130 or contact us here.