New CMHC rules will make it easier for the self-employed to get mortgages
Thursday Sep 27th, 2018
In Canada, convincing a lender to give you a mortgage is not exactly easy for anybody these days. But, there are some home buyers who have a harder time than most — and the self-employed definitely rank among them.
The less predictable aspects of self-employment, like fluctuating incomes, have long made it hard for lenders to hand out mortgages to self-employed home buyers. As is the case with many types of loans, qualification criteria for mortgage borrowers typically favor applicants who can demonstrate financial stability and consistency — qualities which assure lenders that their borrowers will be able to keep up with loan payments.
Canada Mortgage and Housing Corporation (CMHC) is trying to fix this. The crown corporation announced last week that it would be broadening the range of documentation that lenders can refer to when they’re considering applications from self-employed buyers.
Self-employed buyers, who might not have been able to prove financial stability with the type of documentation that was previously accepted, can now submit their Notices of Assessment (NOA), T1, CRA Proof of Income Statements, and the Statement of Business or Professional Activities (T2125) to support their mortgage applications.
CMHC will also give lenders examples of reasons they can lend to self-employed borrowers — especially those who have been running a business for less than 24 months, or have been in the same line of work for less than 24 months. (Activities that count as being in “the same line of work” include acquiring an established business, gathering sufficient cash reserves for the business, working towards getting predictable earnings through the business, and taking on training and education related to the business.)
Mortgage default insurers like Genworth Canada and Canada Guaranty already run programs for self-employed borrowers. But, their programs cater to people who have been in business for two years or more.
The changes will come into effect on Oct. 1.
CMHC said that the changes will apply to mortgages that are insured with transactional insurance — mortgage insurance for buyers who have put down a down payment of 20% or less.
The changes will also apply to mortgages that are not already insured under CMHC’s 20% down payment rules.
Self-employed individuals make up about 15% of the population in Canada.
CMHC’s new rules “respond to that reality by making it easier for self-employed borrowers to obtain CMHC mortgage loan insurance and benefit from competitive interest rates,” said CMHC chief commercial officer Romy Bowers, in a statement.