Imagine yourself as an up-and-coming carpenter, working for yourself, and trying to hide as much income from the tax-man as possible! You don't have a care in the world, when wedding bells ring out and responsibility slaps you in the face. The wake-up call really hits home when your better half wants a house. For years you have spent your money as you made it. Having no money in the bank, a few credit card debts, and an income tax return showing only $12,000 in earnings can have a severe impact on mortgage pre-approvals. John sensed he may have a problem, and having been an avid reader of this column over the past few years, decided to set up an appointment.

The first few questions were easy...date of birth, social insurance number, address, amount of rent ($400/mo), how long he had been at this address (2 years), who his bank happened to be, as well as landlord's name & phone number, list of assets (total of $4500) & liabilities ($1200 in credit cards), etc. We now entered the domain of employment. He was self employed, with no prepared financial statements, and an income tax return showing taxable income of only $12,000. I reviewed the application and asked John how much he could afford in mortgage payments. His answer was $1200/month. I then asked him about the girlfriend! Being of European decent, he wanted to qualify on his own. I surprised him a little by asking how he could afford $1200/mo when his present rent was only $400/mo. and he did not have any savings per say. He started to get a little on edge. He answered that his girlfriend was paying $800/mo rent now, so she would make up the difference.

I told him we had a major problem if he was going to apply on his own, because he showed very little earnings, and no cash for a down payment. He answered... "all this stuff I've been reading over the last two years like equity lenders and bankrupt applicants led me to believe you could do miracles!". Miracles happen when there is something to work with! John had a good credit rating on his credit card debt but no proof of adequate income, and no cash for a down payment. I stated I could work with no down payment, if I had adequate provable income; I could work with no provable income, as long as I had adequate down payment (ie.25% of purchase price). Without down payment or income proof, trying to get him a mortgage to help him out of his dilemma would be near impossible. I did suggest to him that if he could get the

Page 2 of 2

Vendor of the property to grant him a (Vendor-Take-Back) second mortgage for at least 25%, I probably could still get him a first mortgage. There would be fees to pay, and the rate of interest would certainly be higher than what he was expecting. He didn't like that answer! I asked him again about the girlfriend. Burying his pride, he asked the girlfriend to call me.

It must be true that opposites attract! Helen is a dental hygienist earning $45000 per year, and she has $14,000 tucked away in an RRSP. She has a newer car, some cash ($4200) and no debts. Her credit rating is superb. Her RRSP is in a vehicle that will allow the down payment under the First Time Buyers' Program. She wants to use the RRSP for the down payment, and she doesn't mind paying the closing costs. After five minutes interviewing Helen, I approved them for a $140,000 purchase.

Instead of paying fees, and getting a higher rate (because of Helen's involvement), they get discounted rates, and no extraordinary fees⁽¹⁾. John still has a problem with her having to sign and use her money but understands that the system must see the facts in order to grant them a "normal" mortgage. Hiding income may suit you now but eventually the system will catch up to you if you need to borrow money.

1. They will still have to pay all the regular closing costs such as legal fees, appraisal fees, land transfer tax, etc.