Getting a mortgage as a self-employed individual can be touch, especially with all the hoops it seems one has to jump through to qualify. But fortunately, CMHC (Canadian Mortgage and Housing Corporation) has been making it easier for the self-employed to obtain a mortgage.
Good news! But how?
Mortgage Default Insurance, which is commonly referred to as CMHC insurance, is mandatory in Canada for down payments between 5 per cent (the minimum in Canada) and 19.99 per cent. Mortgage default insurance protects lenders in the event a borrower ever stopped making payments and defaulted on their mortgage loan.
How much is it going to cost me?
Although mortgage default insurance costs homebuyers 2.8–4.1 per cent of their mortgage amount, it does allow Canadians who might not otherwise be able to purchase homes access to the real estate market. Without it, mortgage rates would be higher as the risk of default would increase. Lenders can offer lower mortgage rates when mortgages are protected by mortgage default insurance because the risk of default is passed along to the mortgage insurer.
What do I have to do to qualify?
There are some requirements you have to meet to qualify for mortgage default insurance:
- The maximum amortization for insured mortgages is 25 years.
- If the purchase price is between $500,000 – $999,999 a higher down payment is required. The minimum down payment is 5 per cent of the first $500,000, and 10 per cent of the remaining amount.
- Mortgage default insurance is not available on homes purchased for more than $1 million; this means that a 20% down payment is required on these homes.
Those who have documentation to prove their income can now have access to all 1–4 unit properties under the CMHC Mortgage Loan Insurance programs. This means that self-employed people can be assessed as borrowers who are not self-employed.
With this being said, there are some guidelines that must still be followed and vary from individual lenders. Some examples are:
- Be in the same line or work or business operation for a minimum of 24 months
- Be a Canadian citizen, a permanent Canadian resident, or a non-permanent resident who is legally allowed to work in Canada.
- Non-permanent residents must purchase a 1 unit owner-occupied property with max LTV (Loan To Value Ratio) of 90 per cent.
- One can only have a max of one CMHC-insured property at a time.
In a difficult lending environment, it is great to see that attempts are being made to get people back into the market with fairer access to home purchases.
Thinking of buying or selling a home? The Merenda Real Estate Group can help. With 20+ years of industry knowledge and a client-forward approach, let The Dealmakers get you the results you want and the experience you deserve. Contact us today or call 416-240-SOLD (7653).