I have spent most of my life as a self-employed person myself, I was excited to hear that CMHC (Canada Mortgage and Housing Corporation) is making some changes that will make it easier for us, the self employed, to qualify for a mortgage.
In an announcement on July 19, 2018, the CMHC has said “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.” — Romy Bowers, Chief Commercial Officer, Canada Mortgage and Housing Corporation. These policy changes are to take effect Oct. 1, 2018. (https://www.cmhc-schl.gc.ca/en/media-newsroom/news-releases/2018/cmhc-introduces-changes-help-self-employed-canadians-own-their-own-home)
Self-employed borrowers often write off as many expenses as they can to minimize the income tax they pay each year. This is a standard tax saving technique but it also means that often a realistic annual income can not be established high enough to meet mortgage qualification guidelines.
Laymen’s terms: Look good on paper.
Generally CMHC wants to see two years established business history to be able to determine an average income. However the corporation has said that as of October 1, 2018 it will now make allowances for people who acquire existing businesses, can demonstrate sufficient cash reserves, who will be expecting predictable earnings and have previous training and education.
Take for example Joe, he has been a carpenter with a company for the past 5 years and in the industry for 15 years, 13 months ago he decided to start his own carpentry business. His main work experience is with the company he used to work for, but now he has the ability to pick up contracts from the industry in which he has many connections.
Previously he would have had to entertain a mortgage with an interest rate higher than the best on the market and may have had to paid a fee, October 1st he will be able to meet insurance requirements and get preferred rates.
Another thing that CMHC has done is to allow for more flexible documentation of income and the ability to look at Statements of Business Professional Activity from a sole-proprietor’s income tax submission to support Add Backs of certain write-offs to support a grossing-up of income. Basically, recognizing that many write-offs are simply for tax-saving purposes and are not a reduction of actual income. This could mean a significant increase in income and buying power.
It is encouraging that after years of government conservative policy changes, to finally see a change that will support you and I in the purchasing of a home, rental property or a cottage. Call me today, I will be happy to help you.