A common question I get from people who are self employed – “how much income should I report and still be able to get a mortgage”? An common scenario self employed people want to avoid is, aggressively writing down their income for tax purposes, then when they go to the bank to apply for a mortgage the bank tells them that they don’t make enough money.
There is an easy fix for this problem. Don’t worry about qualifying for a mortgage at the bank, go ahead and start writing off all your legitimate business expenses today!
Let me explain…
Mortgage brokers deal with lending institutions other than banks who specialize in serving self employed borrowers, and here’s why it makes sense to write off all legitimate business expenses .
Assuming your annual revenue is $150,000, depending on the nature of your business, you might modestly arrive at $50,000 in expenses for the year. On the other hand, if you are more aggressive in calculating legitimate expenses, you might arrive at $100,000 in expenses. With the additional $50,000 in expenses, you will save roughly 50% (you are in the highest tax bracket) on the additional expenses you claim, which comes to roughly $25,000 savings in this example — a substantial amount of money!!
On average, the additional cost of doing business with a mortgage broker is around 1% on your mortgage rate per year. Currently the mortgage rate at most banks is around 3.25%, while alternative lending institutions are mostly charging around 4.25%. Assuming an additional cost of 1% on a mortgage of $500,000, the additional cost of doing business with a mortgages broker, is therefore $5,000 in interest per year, in this example.
Is it worth spending an extra $5,000 on mortgage interest in a year if you can save $25,000 on your taxes? Obviously the answer is yes!
For mortgage solutions, call me today, I look forward to hearing from you!
David Grossman MBA
Loan Central Canada/Real Mortgage Associates Lic # 10464
Tel. 416 876 2031