Self-Employed individuals have had a harder time qualifying for a mortgage as their incomes may vary or be less predictable. This will soon change as from October 1 2018, Canada Mortgage and Housing Corporation (CMHC) will make changes that will make it easier for the self employed to secure a mortgage.
The self employed make up 15% of the population and they consist of freelancers, commission based workers, entrepreneurs, farmers, Canadian residents running a registered business under their own names, and shareholders of joint ventures or corporations.
According to Romy Bowers, the chief commercial officer at the CMHC, the changes will give lenders more guidance and flexibility to help self-employed borrowers. He went on to say “..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.”
The CMHC will also accept loan applications from borrowers who have been self employed for less than a year, or have switched jobs within the past two years.
These borrowers would need to show that they have :
- Acquired an established business
- Have sufficient cash reserves
- Have predictable earnings
- Have previous education and training
In the past, self employed workers have typically obtained a loan through a stated income application, in which proof of income has been validated with a signed declaration.
Now, in addition to the above, additional documentation will be required such as:
- Financial statements for the business
- Income tax returns and notices of assessments for the previous 2-3 years
- An NOA from the CRA to confirm the lack of tax liability
- Proof of HST and/or GST payment
- A statement showing projected revenue for the coming years
- A copy of the business registration or articles of incorporation showing the business license
- Proof that the applicant is a primary owner of the business
- Proof of funds for a down payment of at least 15%, as well as other closing costs
The changes will take effect from October 1, 2018.
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