The Situation
The clients, a common-law couple with no children, were buying their first home, a townhouse in Metro Vancouver at about $1,015,000, with 25% down from about $380,000 in savings. One is a realtor, more than seven years licensed and incorporated for two, who had drawn about $93,000 and $63,000 in the two years on record while the corporation grossed about $290,000 and $243,000, with net income after tax of roughly $137,000 and $112,000. The other had recently finished a degree and worked part-time in community services at about $50,000. Credit scores were 701 and 772.
The Challenge
On the two-year average actually drawn, about $78,000, plus the part-time salary, the ratios on a mortgage of about $760,000 ran past a bank's limits. A realtor's income is also the kind banks discount, commission-based and variable, and incorporating had made the personal return look smaller still. The usual answer would have been an alternative lender's stated-income program at a higher rate, which we had ready.
The Solution
We asked the bank to use the program it had used for the lawyer's file: qualify the incorporated borrower on the corporation's earnings, not the dividend drawn, with the business income, the net income after tax and the savings as support. The underwriting department's first answer was that no such program existed; we insisted the file go to head office, where it did. The two-year personal average was grossed up by 181.5%, the partner's salary was added, and the residential mortgage was approved at about $760,000, 75% loan-to-value, on a 30-year amortization and a three-year fixed term.
The Outcome
A first home at bank pricing, with the alternative-lender approval left unused. The pattern is the same as the lawyer's file at a smaller scale: an incorporated borrower who leaves money in the company is not a low-income borrower, and a bank that has the program, whether or not its front line knows it, will read the company instead of the dividend once the file reaches the people who do.