Not All Taxes Are Equal To Your Lender
To your average borrower, a tax is a tax. To your lender, taxes are seen much differently.
The borrower knows they have to pay them. They know each tax is calculated and used differently. And they know they vary in rates. And for the most part, they accept them, treat them the same, and consider it a necessary expense.
Taxes like property taxes, income taxes, and GST are seen by the borrower as a necessary expense that all fall under the same tax expense umbrella.
In the eyes of a mortgage lender however…not all taxes are created equal.
For lenders, their concerns lie in where these taxes rank in priority with the mortgage.
This is all due to the fact that unless any one the taxes are seriously in arrears, they will not be disclosed on a title search. So, a mortgage could be registered in first priority but all the while, have other financial charges attached to the property that rank ahead of it.
To help, here’s a little insight into how these three types of tax generally rank and why lenders may put more emphasis on some taxes over others:
- Property Taxes: These can rank ahead of a mortgage. So, you can expect the lender to insist that they’re current at funding. The lender will also likely require proof of payment each year.
- Income Taxes: These taxes do not typically form a priority over a mortgage. So, lenders may likely be more flexible in how they are treated.
- GST: For business-for-self borrowers, GST can rank ahead of the mortgage. So, like property taxes, you can expect the lender will insist that these are current at closing.
If taxes look to be an issue for your borrower, bring them up at the beginning of the application process. That way you can work with the lender to find a solution that will allow the deal to close.
