New CMHC Guidelines could open doors to financing for self-employed
Earlier this year, we asked the question “Why is it so hard to get a mortgage when you’re self-employed”. Here is a link to the blog post in case you missed it.
And then, this summer, CMHC promised to make it easier for self-employed to get a mortgage: https://www.theglobeandmail.com/business/article-cmhc-aims-to-make-it-easier-for-self-employed-to-get-a-mortgage/
The following table outlines enhancements to CMHC’s guidelines, which apply to transactional and portfolio insurance (1-4 unit residential properties) took effect October 1, 2018
The noted enhancements to CMHC’s guidelines for satisfying income and employment requirements for self-employed borrowers are effective as of October 1, 2018.
Please note that the establishment of these CMHC guidelines does not preclude Approved Lenders from observing their own lending practices. As such, implementation of CMHC guidelines may vary among lenders. These new guidelines are meant to be principle based and not to be too prescriptive to provide maximum flexibility for lenders.
In case you missed it, earlier this year we talked about the CMHC insurance premium and the impact it is having on homebuyers.
Why is it important to talk about self-employed Canadians?
“Self-employed Canadians represent a significant part of the Canadian workforce. 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, Chief Commercial Officer, Canada Mortgage and Housing Corporation
Self-employed Canadians are key contributors to strong and vibrant communities and make up about 15% of Canada’s labor force. However, they may have difficulty qualifying for a mortgage as their incomes may vary or be less predictable.
According to Canada Mortgage and Housing Corporation (CMHC), they are making a number of changes aimed at giving lenders more guidance and flexibility to help self-employed borrowers:
- Providing examples of factors that can be used to support the lender’s decision to lend to self-employed borrowers who have been operating their business for less than 24 months, or in the same line of work for less than 24 months such as acquiring an established business, sufficient cash reserves, predictable earnings and previous training and education; and
- Providing a broader range of documentation options to increase flexibility for satisfying income and employment requirements when qualifying self-employed borrowers such as the Notice of Assessment (NOA) accompanied by the T1 General, the CRA Proof of Income Statement and the Statement of Business or Professional Activities (T2125) to support an “add back” approach for grossing up income for sole proprietorship and partnerships.