Around 15% of Canadians are self-employed. They are a powerful part of the economy and are increasing by the numbers every day. Still, lenders consider them to be high-risk when they are qualifying for a mortgage. Self-employed Canadians and competitively-priced mortgage are hard to come by. To get a mortgage, requirements must be met. For the self-employed, these requirements need more evidence.
Now time for the good news.
The Canada Mortgage and Housing Corporation (CMHC) just announced changes to their self-employed mortgages policy. The changes go hand in hand with their mission: to address the housing needs of all Canadians. Canada’s authority on housing has spoken, and it’s time to help self-employed Canadians own their own home.
“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,” said Romy Bowers, Chief Commercial Officer, CMHC.
Expect an extra hand when you are qualifying for a mortgage starting October 1st, 2018. The CMHC will give lenders more guidance and flexibility to help self-employed borrowers.
How is the CMHC going to help?
1. They will provide examples of factors that can be used to support the lender’s decision such as acquiring an established business, sufficient cash reserves, predictable earnings and previous training and education. The examples will be given when you have been in business for less than 24 months.
2. They will provide 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). This will support an “add back” approach for grossing up income for sole proprietorship and partnerships.
Self-employed mortgage tips
A mortgage application needs to be done right. Here are some tips to make your mortgage application work with you if you are self-employed:
1. Start saving for a down payment
The down payment is proof of stability. The larger the payment, the more confident the lender will be of your finances.
2. Work on your credit score
Not only is your credit score another proof that you are trustworthy to your lender, but it also gets you the best mortgage products. It determines your interest rate. Keep a good credit score to get a low-interest rate.
3. Order your financial statements
Being organized always pays off. All your financial statements and tax returns should be ready to go before you apply for a mortgage. File every single document that states that you and your business have financial potential.