New regulations by Canada Mortgage and Housing Corp (CMHC) have made it easier for self-employed Canadians to invest in a house to get a mortgage.
Self-employed people have always found it hard to be qualified for mortgages due to their unpredictable income, and CMHC’s latest move is a welcome relief. Around 15 per cent of Canada’s population is self-employed, and they often find it hard to buy the home they desire.
The new changes make it easier for self-employed people to seek out mortgages and are aimed at lenders by providing more flexibility.
Canada’s largest default insurer allows lenders more flexibility when approving borrowers with less than two years of self-employment income.
Factors that could influence a lender are sufficient cash reserves, predictable earnings and acquisition of an established business. Having previous education and training in the field of work could also be a factor in allowing mortgages.
These factors can be used to support the lender’s decision to give a mortgage to a self-employed person who has been in the same line of work for less than 2 years.
Previously such borrowers found it hard to get a mortgage, and their applications could only be accepted if they had a ‘solid rationale’.
Similarly, to make things easier, a broader range of documents that could satisfy income and employment requirements for self-employed people have also been included. These documents include tax forms, proof of income statement from the CRA, a notice of assessment and a Form T2125, a statement of business or professional activities.
“These policy changes respond to that reality by making it easier for self-employed borrowers to obtain CMHC mortgage loan insurance and benefit from competitive interest rates,” Romy Bowers, the CMHC’s chief commercial officer, said.
Other requirements will include compulsory mortgage insurance for borrowers paying a down payment of less than 20 per cent of the house’s value.
Many experts have welcomed the move and said the increased flexibility of documents accepted would make it easier for borrowers who have the money to pay for the mortgage but couldn’t get one due to their type of work.
This is especially true for younger borrowers who can now access mortgages and buy homes earlier or invest in property for businesses. This could increase innovation and entrepreneurship, according to some experts.
Mortgage comparison website RateSpy.com said the new changes from CMHC would apply to self-employed borrowers who have a down payment of less than 20 per cent and require high-ratio default insurance or have a down payment of more than 20 per cent and are using a lender that insured all of its mortgages and self-employed borrowers who are switching to a lender that insured all of its mortgages.
Other mortgage default insurers, including Genworth Canada and Canada Guaranty, already have programs for self-employed borrowers, RateSpy.com added. However, they required the self-employed person to have been in business for at least 2 years.
