Existing Situation: Strong Financial Position with Complex Income
Sarah, a teacher, and Ben, a business owner, were recently married and ready to purchase a home in Surrey, BC. With Ben’s strong business assets and Sarah’s stable teaching income, they were in a strong financial position. But Ben’s income was mainly dividends from his co-owned business, which made mortgage qualification more complex. They wanted to maximize their buying power and considered using both net worth and potential rental income.
The Problem: Securing a Mortgage with Business Income and Future Investment Goals
While financially strong, Sarah and Ben wanted to keep a large portion of Ben’s funds available for future investments. Ben’s non-traditional income, which was structured as dividends through a holding company, required a flexible mortgage approach.
They explored two options:
- Keep Ben’s current property in Delta as a rental, using rental income to qualify for a mortgage.
- Sell the Delta property to increase their down payment and qualify for a higher purchase price.
The Solution: Cash Purchase and Strategic Mortgage Refinancing
After reviewing these scenarios, Sarah and Ben decided to sell the Delta property. This approach maximized their purchasing power and allowed them to set up a home equity line of credit (HELOC) for extra financial flexibility.
Property Details and Financial Breakdown
Their new home in Surrey, BC, was purchased for $2,053,000. With proceeds from the Delta property sale and personal savings, they were able to put down $850,000. They qualified for a $1,203,000 mortgage with a 5.51% fixed rate and a 30-year amortization. Additionally, they set up a HELOC of $184,400 with a 7.20% variable rate to ensure they had access to funds for future investments.
Income and Financial Background: Leveraging Net Worth and Business Dividends for Mortgage Approval
Ben’s income came from his business, BlueSky Solutions, where he held a 50% stake. Recently, he shifted from a salary to dividends for better flexibility. While this structure offered tax advantages, it required specific documentation to meet lender requirements for a high-net-worth mortgage. Ben provided dividend averages, cash assets, and equity from the Delta property sale to support the application.
Sarah’s steady income as a teacher was reliable but not substantial enough to cover the mortgage on its own. Their combined assets, especially Ben’s business reserves, formed the basis for their financing approach.
Mortgage and Net Worth Strategy: Choosing the Best Option
To qualify, Sarah and Ben explored two financing scenarios with their lender:
Scenario 1: Keeping the Delta Property as a Rental
Purchase Price: $1.6 million
Rental Income: $3,200/month from Delta Property
Mortgage Approach: Combine rental income with net worth assets for down payment
Downside: Reduced purchasing power with a more complex structure
Scenario 2: Selling the Delta Property for Maximum Purchase Power
Purchase Price: $2 million
Mortgage Structure: High loan-to-value mortgage with additional HELOC
Outcome: Increased purchase power by freeing up equity from Delta property sale
Advantage: Simpler mortgage structure and ability to buy a more valuable home
After evaluating both scenarios, Sarah and Ben chose the second option, freeing up $850,000 for a down payment. This enabled them to qualify for a larger $1,203,000 mortgage.
Closing the Deal: Mortgage Approval and Final Steps
With lender approval, the couple completed their purchase and secured a 5.51% mortgage on a 30-year term. Adding a HELOC offered them flexibility for future business or investment needs without disrupting their personal finances. This setup allowed them to own their dream home while keeping funds available for other goals.
Conclusion: A Net Worth Mortgage Strategy for Business Owners with Unique Income Structures
Sarah and Ben’s case demonstrates how business owners with non-traditional incomes can use a net worth mortgage strategy to achieve financial and personal goals. By leveraging Ben’s assets, they successfully secured their ideal home, kept funds available for investments, and simplified their mortgage structure.
If you’re a business owner looking to make the most of your assets, schedule a strategy session today to explore your mortgage options.