With all of the new rules, where do our self-employed clients sit amongst all of the changes? That’s a question that we have been working on solving for the last couple years as all the adjustments are being implemented.
In the past, we had the great NIQ (No Income Qualifying) Mortgage which allowed clients to take as little as possible out of the company to get the tax break and then to simply “state” their income with as little as 10% down to qualify on an A side mortgage. But lately, having your cake and eating it too, is gone.
The product still exists with the 10% down, but with tighter parameters on the A side, we are having to justify the stated with proof of company financials and other documents to support what income is being used. Don’t forget the mortgage insurance premium is also increased on this program.
35% down and bank statement deposits to verify, will get you into the program on the B side, but you won’t be seeing those top rates offered and likely a 1-2% fee on top of the mortgage.
So what is the new strategy as we adjust with mortgage changes? Sharie Rideout with Ledgers Cochrane, tells us that planning ahead will help. Working with your accountant and your mortgage agent ahead of time to determine a strategy on how you can qualify in the future and still keep that tax bill reasonable when it’s due.
“Whether you pay the taxes now or pay the higher interest rate later, it will catch up with you at some point with the mortgage programs adjusting” Sharie says. “So sitting down with your financial team will help you get the best of both worlds”.
In order to qualify for a $400,000 mortgage with 10% down, you need to show an income of approximately $80,000. Income tax paid on that amount taken out of a company would be around $9000.
The difference in Interest on a Verifiable Mortgage Income and a Stated Mortgage Income on that $400,000 with 10% down is $5948.95 over the 5 years, AND the mortgage insurance premium paid on the Stated Income is $9900 MORE than the Verifiable.
So be sure you are taking all things into consideration when doing your tax planning. Being self-employed has some great advantages. Our Advice: Building a team of professionals who can help you maximize all of those benefits is the best move you can make for your company and your personal finances.
*Qualifying amount is dependent on several factors, income tax paid is also dependent on several factors