Update on Mortgages for the Self-employed

27 Sep
self-employed-mortgage

Update on Mortgages for the Self-employed

Recently, we wrote a post about how self-employed individuals can be approved for a mortgage. Self-employed mortgage applicants face additional challenges because they pose greater risks to lenders because their income can be unpredictable.

Last July, self-employed people looking to enter the housing market received some good news. The Canadian Mortgage and Housing Corporation (CMHC) announced that they will try to make it easier for self-employed people to get a mortgage.

Let’s review how changes from the CMHC might help self-employed people buy a home.

Changes to Lending Philosophy

Self-employed people make up roughly 15% of Canada’s workforce so it was necessary for changes to come about. CMHC wants to support lenders and encourage them to approve mortgages for self-employed.

The changes include:

  • Approving borrowers who have been in the same line of work for two years.
  • Approving borrowers who have been self-employed for less than two years.

Factors to Help Lenders

CMHC has outlines several factors that lenders can now use to approve mortgages for self-employed applicants. These include:

  • Purchase of an established business
  • Stable monthly earnings
  • Adequate training and education
  • Cash reserves

Prior to these changes, a lender could approve a self-employed applicant but they were not supported by the CMHC, who ultimately insures and secures the loan.

Documentation

Self-employed applicants have always had problems overcoming the lack of documentation to prove they are a viable loan candidate. CMHC has provided more documentation options for applicants to help them get over the hump.

Starting on October 1, 2018, applicants can provide a notice of assessment with a T1 General tax form, CRA proof of income statement, a T2125 form, which outlines professional activities.

Having more flexibility when it comes to the required documents will arguably remove the largest barrier.

Down Payment

This falls outside the purview of the new CMHC changes, but having a down payment that exceeds 20% means you will not have to pay for mortgage insurance. This remains the easiest way for self-employed people to secure a mortgage.

Contact us if you’re self-employed and want to discuss your mortgage situation. We can help you understand what you will need to be approved and how these recent changes can work in your favour.