Matt wants to buy a house for Christmas. Since his brother bought a house three years ago, Matt has planned for this day. He has contributed heavily to his RRSP lately, and is finally in a down payment position to buy. He has read all the documentation relating to provable income, and he fears he may have a problem. You see, Matt has been a self employed contractor who works through a company that sells, installs and monitors alarm systems. Matt has been one of the sales people for the last four years and he draws $750 per week from the company. The only thing that differentiates Matt from other people is that he must do his own income tax preparation and submission. When he fills out his income tax returns, the company issues him a T2033 form which basically informs Revenue Canada that Matt must utilize his own car for the job, as well as keeping an office in his rental unit to do paperwork, relating to the job. Matt also does entertaining for the purpose of acquiring new sources of business, primarily new home sales people. Matt gets to deduct all of those expenses from his revenue, therefore he does not show a lot of taxable income.

Matt goes to see his loans officer and tell her that he draws $750 per week from the company and that he has worked there as a sales contractor for four years. She asked to see his RRSP statement which indeed shows he has the necessary down payment and closing costs (6.5% of the purchase price) for the purchase he has in mind. She asks him about is debts, his assets, and his credit rating. He answers all the questions and indeed was very surprised that she did not go into the contractor business more in depth. She thanked him for his time and would get back to him in a day or two. He thought for sure this was a polite way of saying no. To his surprise, the loans officer called him back two days later to say that his mortgage had been approved as submitted. He could indeed go out and buy that house he wanted.

Not wasting any time, he put in the offer that very day for the house of his dreams. The offer was accepted and the closing date was set for December 15^th, just in time for Christmas. He provided a copy of the offer to his bank, along with a letter from the Company stating he was a Contractor and drew down $750 per week, and a copy of his RRSP statement. He then began to pack. A few days later, his loans officer called to ask him to provide three years worth of income tax returns, her boss wanted to review them but assured him there would be no problem because he had been there for four years. He was a little skeptical but obliged. He did not hear anything for eight weeks so he assumed that everything was fine. He told his girlfriend of three years that he had bought a house, and asked her to move in with him. She was thrilled.

This week, Matt got the bad news. Since he was a self employed Contractor, the lender and CMHC could only calculate his income on a net taxable basis, therefore he did not qualify for the mortgage. He went to see his loans officer and her boss, saying he had played by all the rules at the onset. He had divulged from day one that he was a contractor, why did it take them nine weeks to tell him he did not qualify? What was he to do now? He had already collapsed some of his RRSP to put as a down payment on the house. If he did not buy the home, the RRSP withdrawal would now be taxable, and he would lose the deposit to the builder. The lender had no answers for him, other than the loans officer was new to the job and did not recognize the problem until after the company’s letter was read.

In a desperate panic, he called me and told me his story. I felt bad for him, but on his own he did not qualify for the mortgage required. I could have told him that nine weeks ago. We had to find a solution. I asked him how close he was to his girlfriend, and what did she do for a living. He admitted that they were very close and that she was a nurse earning $45000 a year. I told him honestly that the answer was the girlfriend. Did she want to become co-owner of the house? After thinking about it for a couple of days, she said she would. End of problem! The girlfriend was added to the purchase and sale agreement, verification of her income was provided, and her credit rating was good. Debt service ratios in line, the mortgage got approved and it will fund on time.