There are a few scenarios where clients can have a difficult time obtaining a mortgage because of income:
- Irregular source of income, e.g., commissions, tips, seasonal work
- Self-employed business
- Low recorded income
A net worth mortgage product allows a lender to consider the complete financial profiles of these potential borrowers.
What is net worth?
Net worth is the value of all assets, minus the total of all liabilities. A mortgage lender will have specific definitions of what is eligible as an asset or a liability in their evaluation. Generally, the higher the net worth, the better the chance for securing a net worth mortgage.
| Assets |
– Liabilities |
|
|
Cash (bank accounts)
Retirement savings
Real estate
Investments
Automobiles
|
Credit cards
Loans (student, personal, auto, etc.)
Mortgages
Any other debts
|
= Net Worth |
The case study below is an example of how the process can work when the client has a high enough net worth.
Case study: Looking beyond income
Mary Harper is a recent widow looking to refinance her single-family home to pay off debts and improve her cash flow. She has owned her cleaning services company for 20 years and has lived at her current address for 15 years. Mary has a strong credit rating and good stability, but her reported income is not enough to qualify under standard debt ratios. Her GDS/TDS ratios far exceed conventional thresholds.
This is where a net worth mortgage product makes a difference because eligible liquid assets are included in the evaluation. Within the B2B Bank Net Worth Program, eligible liquid assets can include the following:
- Stocks on a major stock exchange
- Canadian savings bonds
- GICs, personal chequing and savings accounts
- Mutual funds
- TFSAs
- RRSPs (discounted 30% for withholding tax)1
Let’s review Mary’s financial situation, as well as B2B Bank’s conventional and net worth requirements.
| Disclosures |
Mary’s details |
Conventional requirements |
Net Worth requirements |
| Appraised value of home |
$1,100,000 |
Up to 80% LTV |
Up to 80% LTV |
| Requested mortgage amount |
$800,000 |
Max. $1,250,000 |
Max. $1,000,000 |
| Amortization requested |
30 years |
30 – 35 years |
Max. 30 years |
| Income |
$97,000 |
Income too low for standard
debt ratio |
Income + liquid assets |
| Eligible liquid assets |
$951,560 |
N/A |
$555,000 based on GDS/TDS from
qualified income |
| GDS/TDS Ratio |
55/59% |
Max. 39%/44% |
Max. 60/60% |
| Debts to be paid from proceeds |
$56,000 |
N/A |
N/A |
| Credit score |
816 |
Min. 600 |
Min. 650 |
| Mortgage rate |
2.49%
5 year fixed |
Does not meet criteria |
Best rate + min 25 bps |
Reviewing Mary’s net worth, instead of her income alone, increases the potential for her to qualify for the B2B Bank Net Worth Program. Her eligible liquid assets, including RSP and non-registered investments, are more than enough to show that she can meet her mortgage payments, despite her disqualifying income.2
B2B Bank Net Worth Program
At B2B Bank, we recognize that not every client has the same financial situation. The Net Worth Program is designed for clients with moderate income who meet minimum requirements for eligible liquid assets and acceptable credit scores.
We focus on banking that works for brokers by offering a portfolio of mortgage solutions, a wide range of qualifying credit criteria and options for both traditional and non-traditional borrowers.
We invite you to use our pre-screen tools to confirm which of your clients could benefit from one of our mortgage solutions.
To discuss any of our conventional, insured or alternative solutions contact your Business Development Manager.
1 When evaluating RSP assets for the calculation of your net worth, B2B Bank reduces the valuation of your RSP by 30%.
2This is a case study. All applications are subject to review.