The Situation
The clients, a married couple with no children and credit scores of 829 and 785, were buying their first home, a renovated house on a large lot in Metro Vancouver, for about $1.95 million with 25% down from about $1.1 million in savings. One is a lawyer who owns half of a firm grossing over $1.3 million, paid through a personal law corporation opened the year before; the other runs a small design company that has shown no net income in three years.
The Challenge
A bank qualifies an incorporated professional on the two-year average of the T4 or T5 income actually drawn, and a few lenders will gross that average up by 15 to 20%. Here the declared dividend had dropped from about $294,000 to about $85,000 when the personal corporation was set up, so the two-year average sat far below the client's real earnings, and the spouse added nothing on paper. On the bank's standard arithmetic, a $1.46 million mortgage was out of reach for a household with $1.1 million in the bank and a law firm's profits behind it.
The Solution
We built the file on the corporations' financial statements rather than the personal return: the law corporation's net income after tax of about $373,000, the firm's share averaged over two years at about $328,000, and the conservative 2022 dividend of about $85,000, giving a qualifying income near $413,000, a 487% gross-up on the declared figure, supported by the business assets and a pattern of earnings that was sustainable and ongoing. The bank's underwriting department said what we were asking for did not exist; we insisted it go to head office. Head office declined it once; we made one small adjustment and sent it back, and over 21 days of back-and-forth the file collected more than five large exceptions and used every variation of the numbers that could be justified. In parallel we had a fully completed alternative-lender approval ready, so the purchase could close either way. The bank approved the residential mortgage at about $1.46 million, 75% loan-to-value, on a 30-year amortization and a three-year fixed term. The last exception was the rate itself: the rate hold had expired two weeks earlier and rates had moved up by about 30 basis points in the meantime, and the bank honoured the expired hold on the strength of our relationship with it.
The Outcome
The first home completed at bank pricing, at a rate that no longer existed, on an income the bank's own staff said could not be right: more than one person there asked whether there was a decimal point in 487. There was not. The approval stands as an unofficial Canadian record at that lender for a self-employed professional, and the backup approval was never needed. The lesson for incorporated professionals: the income you choose not to draw still exists, and the right program at the right bank, taken to the people who can say yes, will count it.