I hear this from business owners a lot. For some reason, they think it is harder for them to qualify for a mortgage vs someone who earns a salary working for someone else.
This is simply not true. In fact, it could be the opposite in some cases. There are many special programs for sole proprietors and business owners with an incorporated business. These programs often allow borrowers to qualify for mortgage amounts that are greater than someone earning a salary.
For sole proprietorS that report income on personal tax returns, some lenders would allow a gross up of 15% or more on net income (income less expenses). Let’s say if the employer allows you to choose between being an employee or being a contractor for the same position, a contractor would likely qualify for a higher mortgage with the gross up of 15%.
For business owners with an incorporated business, any salary or dividend taken from the corporation can be used to qualify for a mortgage, in addition of net income after taxes of the corporation. This allows tax minimalization on personal taxes and leverage for mortgage at the same time!
The above are suitable for most business owners, whether you are a realtor, IT professional, social media influencer, medical professional, etc.
When it comes to mortgages, each scenario is unique (just like how we are all born different), it is important to have a mortgage professional to go through your exact situation, so that you are aware of all your mortgage options.
Until next time.
Joseph Kwan, CPA, CA
