Net worth

How the bigger picture can help your clients qualify for a mortgage

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.