Canada Mortgage and Housing Corporation (CMHC) has introduced new changes designed to make it easier for self-employed people to get a mortgage.
CMHC said, self-employed people make up approximately 15% of Canada’s population. They may have challenges qualifying for a mortgage because their incomes can vary or be less predictable.
These new changes made public late last week, are designed to give lenders further guidance and adaptability as it relates to self-employed borrowers.
Implementing these changes, CMHC said several factors could be used to support a lender’s decision in providing a mortgage to someone who’s self-employed. For example, self-employed individuals who have been operating their business for less than two years or have been in the same line of work for less than two years. Those considerations could include the acquiring of an established business; sufficient cash reserves; predictable earnings; previous training and education.
CMHC To Broaden Documentation Requirements
CMHC also announced last week that it would be broadening the range of documentation that lenders can refer to when considering applications from self-employed buyers. Those documents will include, Notices of Assessment (NOA) accompanied by a T1 General tax form, a Proof of Income Statement from the Canada Revenue Agency, and a form T2125, which is a statement of business or professional activities. “Our newest enhancement is in response to lender inquiries,” says Monica Guido, CMHC’s Manager of Client Relations. “The second new component it will add onto that is the use of Proof of Income Statements, which isn’t applicable in our current guideline, but in our enhancement, in response to lender inquires, the POI Statement will be added to the guideline as an example of documentation to support that qualifying income, and to ensure that personal income taxes are up to date. So the POI Statement can be used as an alternative to the NOA and T1 General,” said Guido.
CMHC said that the changes will apply to mortgages that are insured with transactional insurance — mortgage insurance for buyers who have a down payment of 20% or less. These changes will also apply to mortgages that are not already insured under CMHC’s 20% down payment rules.
Mortgage insurance is mandatory with any borrower who has less than 20% downpayment of the purchase price of a home. The mortgage loan insurance premium is calculated as a percentage of the loan amount based on the down payment. Mortgage loan insurance is a policy that insures the lender in the event of default by the borrower.
Mortgage default insurers like Genworth Canada and Canada Guaranty already run programs for self-employed borrowers. However, their programs cater to people who have been in business for two years or more.
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 announcing this new initiative.
The new changes will come into effect on October 1st.