HOLLIE QUIRING
VANCOUVER ISLAND – Securing a mortgage if you’re self-employed can be challenging. You may encounter a perception of financial instability associated with running your own business. Enhance your mortgage eligibility by focusing on two crucial areas: separating personal and business finances, and optimizing income reporting.
Lenders require a transparent view of financial health. Maintaining a clear distinction between personal and business expenses is important to avoid complications. To ensure proper separation, you can:
- Open Separate Bank Accounts: Use distinct bank accounts for personal and business transactions to simplify bookkeeping and provide a clear record for lenders.
- Maintain Accurate Records: Keep meticulous records of all expenses and income. Use accounting software to track business finances and organize receipts and invoices.
- Pay Yourself a Salary: Instead of drawing directly from business profits sporadically, establish a consistent salary. This regular income stream can be more appealing to lenders.
- Consult a Financial Advisor: Seek professional advice to structure finances in a way that enhances mortgage eligibility while maintaining tax efficiency.
A stable and higher reported income can also significantly improve your mortgage eligibility. Self-employed individuals often underreport income to minimize taxes, but this can be detrimental when applying for a mortgage. Consider the following strategies:
- Salary vs. Dividend Payments: Consult with an accountant to determine the optimal balance between salary and dividends. While dividends might be tax-efficient, a regular salary demonstrates consistent income, which some lenders favor.
- Document All Income Sources: Ensure all sources of income are documented and reported. This includes part-time work, freelance projects, and other business ventures.
- File Complete and Accurate Tax Returns: Lenders typically review two to three years of tax returns. Ensure these documents accurately reflect your income and are filed on time.
- Retain Earnings in the Business: Keeping more profits within the business can sometimes demonstrate financial stability. Balance this with the need to show sufficient personal income.
Following these tips will help you present a clearer and more stable financial picture to lenders. If you have any questions about getting a mortgage, give me a call at 250-268-4208 or send an email to hollie.quiring@cccu.ca.
Hollie Quiring is a Mobile Mortgage Manager with Coastal Community Credit Union.
