The enhancements are effective October 1
The Canada Mortgage and Housing Corporation will enhance qualification criteria for self-employed borrowers beginning October 1 to give them much-needed relief.
Under current rules, self-employed borrowers who operate their business or have been in the same line of work for fewer than two years can qualify for a mortgage provided that a solid rationale is noted on the lender’s loan file.
But a few additions to the guidelines will reduce rigidity.
“Factors that could be used to support the lender’s decision will include acquiring an established business, having sufficient cash reserves, predictable earnings, previous training and education, and looking at borrowers’ demonstrated history of managing credit,” said Monica Guido, CMHC’s manager of client relations.
Newly self-employed borrowers are also getting a break. Documents showing previous employment are currently sufficient to support qualifying income, but, come October, previous documentation based on types of income will also be accepted, as will recent account statements, business documentation and signed contracts that are based on income types.
For self-employed borrowers using the “add back” to gross up their income, audited financial statements and financial statements accompanied by a Review Engagement Report signed by a practicing accountant are currently accepted.
“Our newest enhancement is in response to lender inquiries,” said Guido. “CMHC recognizes that unincorporated business owners may not typically have that documentation. The following documentation will be added: A Statement of Business or Professional Activities report, and use of Notice of Assessments to support income from the self-employed. The NOA should be accompanied by the T-1 General. This is new.
“The second new component it will add onto that is the use of Proof of Income statements, which isn’t applicable in our current guideline, but in our enhancement, in response to lender inquiries, the POI statement will be added to the guideline as an example of documentation to support that qualifying income, and to ensure that personal income taxes are up to date. So the POI statement can be used as an alternative to the NOA and T1 General.”
Daniel Johanis, a DLC Mortgage Centre broker, believes that the enhancements will help CMHC recover market share, but above all he welcomes them because they offer the broker channel more solutions.
“For the majority of my self-employed clients, I’m doing it through the alternative channel,” he said. “At alternative banks where you put at least 20% down, they have a little bit more flexibility with what they can use as far as income sources. You have the Canada Child Tax Benefit, you have Registered Business, whereas some other banks, if you’re doing high ratio, you always have to look at your Line 150, or whatever your net income is.
“Any time requirements are loosened on getting approved for a mortgage, it gives us more options.”