Mortgage Financing and The Self Employed

Mortgage Financing has become more and more complicated over the last 2 years after new rules were introduced by the nation’s bank regulator in the summer of 2012. According the Marjo Johne in today’s article on mortgages in the Globe and Mail, Guideline B-20 was introduced into the system as part of a more rigorous scrutinizing process for mortgage financing. When applications are examined in the chartered banks today, income now holds more weight than credit scores. This poses a challenge for those in the ranks of the self-employed as some self-employed folks have, in the past, lowered their taxable income using the maximum allowance for business expenses as well as personal expenses when doing their taxes. In the past banks permitted clients to complete “stated income applications” when clients provided proof of self-employment using documents such as “articles of incorporation” or a signed income declaration.
Under the new regulations, according to Horne, self-employed workers may still qualify for these “stated income applications” but rather than under conventional mortgage guide lines (which is 75% of the total amount) they will now be limited to only 65% of their mortgage financing. Less than this sum now requires CMHC financing for those who are self-employed.
Some brokers have been experiencing difficulties getting re financing for past clients because of these new guidelines.
All this to say that before beginning your search for your new home, it is best to have your ducks in order and most especially when it comes to your financing. Do not assume because everything was fine last time things will be the same this time. You do not want to be blind sided at the eleventh hour.
For more details related to this article please see Marjo Johne in today’s Globe and Mail report on Business page B5.