A large part of the mortgage news in Canada centers on CMHC and government policies that primarily affect the country’s largest mortgage insurer, which often leads to confusion when it comes to new mortgage rules.
For example, back in April of this year CMHC announced that it was discontinuing its “Self-Employed Without 3rd Party Income Validation,” mortgage products. What this meant from a big picture perspective, and how consumers interpreted this announcement were two completely different stories.
Consumers tended to view this announcement as a blanket decision that affects all self-employed Canadians, and that mortgages for self-employed individuals were going to become much harder to obtain. However, this was a far from accurate interpretation.
What the announcement really meant to self-employed individuals was that CMHC would only accept their net income from that point forward, which presented a potential issue for those who have a large amount of business write offs or who choose to retain their income in their company rather than take it personally for tax purposes. What this didn’t mean was that mortgages for self-employed people were a thing of the past.
Many failed to realize that even though CMHC changed their rules, Genworth, Canada Guaranty, and many of the banks made no changes at all. Genworth, Canada’s second largest mortgage insurer, continues to allow business owners with large write offs to declare their income based on a reasonability test. The reasonability test looks at the applicant’s length of time in business and industry and determines whether or not their declared income is reasonable for their business.
Lenders like Home Trust also kept their product offerings in tact, offering mortgages with as little at 10% down payment to self-employed individuals who don’t quite meet Genworth’s or Canada Guaranty’s requirements.
Furthermore, for clients with larger down payments, Home Trust will often approve applicants who have owned their own businesses for less than two years or look at unique income situations like those of employees in the hospitality industry who make a large portion of their income from tips. Basically, if it is reasonable to assume that the client will be able to make the mortgage payments, Home Trust will look at it.
Banks are even becoming more reasonable when it comes to self-employed borrowers. For instance, banks are seeing a large number of employees moving to contract work for tax purposes. Even though a contractor may not meet the banks requirement that they be in business for two years, often they are willing to make exceptions to this rule, as long as it makes sense.
The trick to finding the right mortgage as a self-employed borrower is to find the right lender, which may not be your bank. Just because you got turned down doesn’t mean that you are un-approvable, it may just mean you were the right client applying at the wrong financial institution. An Accredited Mortgage Professional can help you find the right one.
