The Challenge: Mortgage Approval with Self-Declared Business Income
Emma, a successful self-employed business owner, had been running her company for over 15 years. She was living in her home in White Rock, BC, but wanted to purchase a new property in the area using the proceeds from selling her current home.
The Problem: Although Emma had a solid business income, she didn’t claim enough income personally for her credit union to approve the mortgage. She was also aiming to buy a property priced higher than what she initially planned for, requiring a flexible financing solution.
The Solution: By working with a lender familiar with self-employed clients, we were able to get her pre-approved and purchase her dream home using a special corporate income program.
Property and Financial Breakdown: Current and New Home Details
Current Home (to be sold):
- Valuation: $514,000 (BC Assessment)
- Mortgage: $188,335
- Estimated Selling Price: $525,000
- Net Proceeds from Sale: $312,790 after deducting real estate fees, legal fees, and a mortgage penalty
New Property Purchase Details:
- Purchase Price: $790,000
- Down Payment: Proceeds from the sale of her current property, around $290,000
- Mortgage: $500,000, 5-year variable rate mortgage (VRM) with a 30-year amortization
Income and Liabilities
Emma’s business generated steady revenue. Her gross income for 2020 was $185,000, and for 2019, it was $168,000. However, Emma needed to manage how much income she declared for mortgage purposes. She had options to adjust her dividends and shareholder loan amounts to increase her qualifying income.
Her liabilities were minimal, including a line of credit with an $8,000 balance and a $24,000 limit, as well as a small credit card balance of $94.
Mortgage Pre-Approval and Submission Process
Initially, we secured a pre-approval for Emma for a maximum purchase price of $620,000. However, her new home was priced at $790,000—above the original plan. To make the numbers work, we used a 2-year Net Income After Tax (NIAT) average from her business financials and submitted the deal for a 5-year VRM with a 30-year amortization.
Purchase and Approval
Emma’s accepted offer for her new property had a purchase price of $790,000, with subject removal and possession dates scheduled. The mortgage deal was submitted and approved for $500,000 through the lender at 63% loan-to-value (LTV).
Closing and Final Steps
Emma successfully purchased her new home, using the sale of her previous property to fund the down payment. The transition to her new residence was smooth, and the mortgage was funded at the agreed terms, providing her with the flexibility she needed for future financial planning.
Conclusion: Tailored Mortgage Solutions for Self-Employed Clients
This case demonstrates how a self-employed individual like Emma can navigate the complexities of home financing, especially when buying a larger property. By leveraging the sale of her home and adjusting her business income to fit the lender’s criteria, she was able to achieve her goal of purchasing her new home.
If you’re self-employed or looking to buy a new home using proceeds from a sale, schedule a strategy session today to explore how we can help you secure the right mortgage.