CMHC moves to make it easier for self-employed to get a mortgage

Self-employed Canadians seeking to buy a home may soon find it easier to secure a mortgage after changes announced by Canada Mortgage and Housing Corp.

CMHCsaid self-employed peoplemake up about 15 per centof Canada's population, but they may have difficulty qualifying for a mortgage becausetheir incomes may vary or be less predictable.

Changes unveiled last week by the federal mortgage insurance agency areaimed at giving lenders more guidance and flexibilitywhen it comes toself-employed borrowers.

In the changes, CMHCsaid several factors could be used in future to support alender's decision to give a mortgage to self-employed borrowers who have been operating their business for less than two years or have been in the same line of work for less than two years.

CMHCsaid those factors could include things such as:

• Acquisition of an established business.
• Sufficient cash reserves.
• Predictable earnings.
• Previous training and education.

CMHCsaid that previously, those typesof applications could be accepted, providing that a "solid rationale" was noted in the lender's loan file.

Document options

Additionally, the housing agency also laid out a broader range of documentoptions that could be used tosatisfyincome and employment requirements to qualify self-employed borrowers for a loan.

When the changes take effect on Oct. 1, those documents will include such things asa notice of assessment accompanied by a T1 General tax form, a proof of income statement from the Canada Revenue Agency, and a form T2125, which is 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," saidRomy Bowers, the agency's chief commercial officer, in a statement.

Borrowers who have a down payment of less than 20 per cent of the value of theproperty they're buying are required to obtain mortgage insurance.

Cynthia Holmes, chair of the real estate management departmentatRyersonUniversity's Ted Rogers School of Management, saidthe main challenge facing self-employed potential mortgage borrowers today is income documentation, adding that the changes announced seem to increase the flexibility in what lenders can accept.

Young self-employed people

Holmes said she is particularly pleased that CMHC is signalling that they will be more flexible when itcomes to potential self-employed mortgage borrowers who have been operating their businesses for less than two years.

"This change could especially help young self-employed people access a mortgage more quickly, which supports innovation and entrepreneurship," she said.

Mortgage comparison website RateSpy.com said the new changes from CMHC willapply to self-employed borrowers who:

• Have a down payment ofless than 20 per cent and require high-ratiodefault insurance.
• Have a down payment of more than20 per cent and are using a lender that insured all of its mortgages.
• Are switching to a lender that insured all of its mortgages.

RateSpy.com also pointed out that other mortgage default insurers, includingGenworth Canada and Canada Guaranty, haveprograms for self-employed borrowers.

"These insurers have long allowed more liberal proof of income," such as more flexible documentation requirements, RateSpy said in an online post.

"But, unlike CMHC, Genworth and Canada Guaranty require the borrower to have been in business for at least two years, in order to benefit from this flexibility."