In an earlier post, I discussed the importance of Respecting Capacity.
But I've come to appreciate another facet of capacity that relates to our business - viewing capacity as an asset in your business and leveraging it for maximum profit.
Used to be that I got nervous if I was booked up for less than 3 weeks in advance. I was used to being booked 6 - 12 weeks out and that demand felt good, felt secure.
But these days...
If thinking of buying a home and of starting a business in the near future, it might be prudent to get the mortgage sorted while still steadily employed. Starting a business or financing a vehicle can be done anytime, but it is not always easy to obtain a mortgage. Doing things in the right order can help one reach goals years earlier.
If already self-employed, all hope of owning a home is not lost. Self-employment does make a lot of things in life more challenging, but by now you and I have honed our skills to become tenacious and creative problem-solvers!
Here are a few layman tips to increase the chances of approval. Use at your own risk.
1. Maintain a very good credit rating. Fix what you can, pay off outstanding and overdue accounts. If you need to improve your credit score, consider an RRSP loan. Most institutions will automatically approve RRSP loans where the funds are invested in a bank product. Make the loan payments regularly. Use the contribution to reduce your taxable income, this will generate a lower tax bill or a refund come tax time. Take the tax savings and pay down your loan, or keep building up that down payment. Once you are ready to buy, you can borrow your RRSP money to use as a down payment if you are a first time purchaser. In Canada you have 15 years to repay the money to your RRSP account. If you fail to do so you will need to repay the income tax to the government.
2. Save up a down payment. For most people a 5% down payment may be sufficient to qualify, but if you are self-employed and show lower income, or have less than ideal credit, you may need to have 10% or 20% to put down in order to get approved with a competitive interest rate. It is also wise to account for closing costs on your purchase, which can add up to a few thousand dollars. And don't forget moving and improvement expenses, hook-up fees, etc. A sound financial move would be to save 20 - 50% of the cost of your property as a down payment, and choose a shorter term mortgage of 10 to 15 years. Who wants to be in debt for 30 years? That is a huge burden to carry and it can restrict your choices in life.
3. Stay up to date with your financial statements - bookkeeping, income taxes, GST, NOAs, etc. Being able to show the stability of your business over several years and being up to date with your taxes will go a long way.
4. Find the right professionals to help you: