Over 60% of Canadians are now self-employed in one way or another. That percentage is projected to increase, owing to the growing “gig” economy. Most self-employed individuals have difficulty qualifying for mortgage financing due to the lack of income verification or inconsistency of income.
Effective October 8, 2018, new guidelines from Canada Mortgage and Housing Corp. (CMHC) could make it easier for self-employed borrowers to qualify for financing. The changes apply to borrowers putting down less than a 20% down payment and seeking CMHC’s high ratio default insurance, as well as, in certain cases, where borrowers are putting down more than 20% but default insurance is required by the lender.
Prior to October 8th changes, it was tricky for prospective borrowers to get a loan if they had been self-employed for less than 24 months. The new enhancements allow newly self-employed people to be considered through additional factors such as whether they acquired an established business, whether they have enough cash reserves or predictable earnings, and what kind of training and education they have.
In addition, various income documentation can now be included to help satisfy the necessary requirements, such as Canada Revenue Agency’s notice of assessment and the Statement of Business or Professional Activities (form T2125).
It’s important here to emphasize that the new changes are only guidelines and that lenders and other CMHC partners have leeway to interpret and apply them at their own discretion.
If you are self-employed and your mortgage is up for renewal or if you are looking to purchase a new home, please contact us and we will shop the market for you.
