Existing Situation: Business Owner with a Large Down Payment, but a Need to Reinvest
Sarah Jones, a business owner in North Vancouver, had two companies. She was renting a home, but the property was being developed, so she needed to move with her two children.
Sarah found a new townhome for $935,000 – which was an amazing deal for the property. She was ready to withdraw $1 million from her business to pay for it, but she wanted to keep some of that money to invest in another business.
The Problem: Low Personal Income and Minimizing Cash Outlay
Even though Sarah had a lot of money for a down payment, she:
- Didn’t have a high personal income from her business
- Wanted to use as little cash as possible for the home so she could invest the rest.
- Also had a $200,000 special assessment on the property and upcoming tax payments to think about.
Employment and Financial Background: Leveraging Business Income for Mortgage Approval
Sarah owns two businesses: a retail store and a pet services company.
She pays herself $60,000 per year, but she keeps most of her business profits inside the companies. This allowed her to save about $300,000 in retained earnings each year.
The Solution: Cash Purchase and Strategic Mortgage Refinancing
After discussing some tax planning and time management for Sarah, she decided to pay for the home in cash to avoid delays, then refinance the property later.
This allowed her to:
- Save on some costs by purchasing now
- Reduce her taxes (since the funds she received were going towards investing in a business, processing this way made her mortgage tax deductible)
To get the mortgage approved we first had to dig into her financial statements to understand her business and how it makes money.
There was some complication with money moving between businesses. We had to be very careful to track the funds correctly.
Once they were reviewed, we had 2 lenders that we figured could get the deal approved using special underwriting programs that each had.
Mortgage and Refinance Strategy: Comparing HELOC vs Mortgage Options
To avoid delays, Sarah paid for the home in cash and then looked into refinancing options to get some of her money back.
The file was submitted to two lenders to explore options for either a HELOC or a traditional mortgage.
The first lender approved a HELOC for $340,000 at 7.95%, while another lender approved a $600,000 mortgage at 5.79%
Sarah chose the mortgage because it had better terms and she didn’t need the flexibility of the HELOC (since she was using the funds to make a long term investment).
Closing the Deal: Mortgage Approval and Final Steps
Sarah’s refinance funded surprsingly smoothly.
The cash proceeds gave her the flexibility to invest in other ventures, handle the special assessment, and manage her taxes.
Conclusion: A Flexible Mortgage Solution for Business Owners
Sarah’s case shows how business owners can use a cash purchase and strategic refinancing to meet their personal and business goals while savings on taxes.
By digging into Sarah’s unique situation, we were able to advise her on getting the best mortgage, save money on closing costs, and save her thousands in taxes every year.