People who work for themselves often hampered in mortgage market because income is variable, unpredictable.
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. CMHC said self-employed people make up about 15 per cent of Canada’s population, but they may have difficulty qualifying for a mortgage because their incomes may vary or be less predictable.
Changes unveiled last week by the federal mortgage insurance agency are aimed at giving lenders more guidance and flexibility when it comes to self-employed borrowers.
In the changes, CMHC said several factors could be used in future to support a lender’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.
CMHC said those factors could include things such as:
- Acquisition of an established business.
- Sufficient cash reserves.
- Predictable earnings.
- Previous training and education.
CMHC said that previously, those types of applications could be accepted, providing that a “solid rationale” was noted in the lender’s loan file.
Young self-employed people
Many are particularly pleased that CMHC is signalling that they will be more flexible when it comes 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 will apply to self-employed borrowers who:
- Have a down payment of less than 20 per cent and require high-ratio default insurance.
- Have a down payment of more than 20 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, including Genworth Canada and Canada Guaranty, have programs 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.”