The Situation
The clients bought the lot for about $735,000 plus GST and transfer tax, with a deposit of roughly $208,000 and the balance, about $675,000, owed to the seller under a contract that required no payments until completion. The builder's employer, a developer, agreed to front the materials and whatever else the build needed, about $400,000, far less than a contracted build because the client did most of the work. The result: a brand-new five-bedroom house with a legal suite, worth about $1.7 million.
The Challenge
Nothing about the file fit a bank's template. There was no construction mortgage and no draw schedule to take out; instead there were two private debts, to a land seller and to a developer, that both had to be paid on the same day. The builder's income for the year had fallen to less than half of normal because the client had spent the year building the house instead of billing clients, so the ratios on paper were above 80%. A legal suite with no tenant yet, a nurse's salary and child benefits made up the rest.
The Solution
We placed the residential mortgage with an alternative lender under its business-for-self stated-income program, which allows total debt service up to 60% and reads bank statements rather than a tax return. The builder's recent deposits were documented and the reason for the low year was explained in writing, with the usual earnings on record. The suite's market rent was confirmed by appraisal, the nurse's income and the child benefit were added, and the lender advanced about $1.1 million at roughly 65% loan-to-value on a 30-year amortization: enough to pay the land seller about $675,000, the developer about $400,000, and closing costs, with about $235,000 of the clients' savings still in hand.
The Outcome
The family owns a new home with about $600,000 of equity on the day it was finished, every builder and seller paid, and one mortgage where two debts had been. A one-year term keeps the door open to a bank once a normal year of income is on record.