Canada’s Mortgage and Housing Corp. is finally adapting its legislation in response to a growing number of self-employed Canadians. These measures are geared towards simplifying the mortgage borrowing process, and providing more flexibility and guidance to national lenders, when approving applications from self employed borrowers.
CMHC said self-employed people make up about 15 per cent of Canada’s population. Traditionally, entrepreneurs and small business owners have faced difficulties when applying for loans, as their incomes are variable and less predictable.
The self -employed title applies to freelancers, Canadian residents running a registered business under their own names, entrepreneurs, farmers, commission-based workers, and shareholders of joint ventures or corporations.
The CMHC has indicated it would now accept loan applications from borrowers who have been self employed for less than a year, or who have switched jobs within the past two years. It will also provide more documentation to guide lenders when reviewing these applications.
Self-employed workers typically obtain a loan through a stated income application, in which proof of income is validated with a signed declaration. In addition, they will need to provide the following documents:
- Income tax returns and notices of assessment for the previous two to three years.
- A copy of business registration or articles of incorporation showing the business license.
- Financial statements for the business.
- An NOA from the Canada Revenue Agency to confirm the lack of tax liability.
- Proof that HST and/or GST has been paid in full.
- Proof that the applicant is a primary owner in the business.
- Client contracts showing projected revenue for the coming years.
- Proof of funds for a down payment of at least 15% , as well funds for other closing costs.
These changes will take effect from October 1, and apply to both transactional and portfolio insurance.
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