and benefit from competitive interest rates.” — These policy changes are to take effect Oct. 1, 2018. Traditionally self-employed borrowers will write as many expenses as they can to minimize the income tax they pay each year. While this is a good tax-saving technique it means that often a realistic high annual income can not be established to meet mortgage qualification guidelines. In other words, we don’t look good on paper... Normally, CMHC wants to see two years established business history to be able to determine an average income. Now, there is help for those who have been self employed for less than two years. The agency said 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 a borrower that has been in a IT position with a firm for the past eight years, and in the same industry for the past 15 years, but just ventured as an IT consultant last year. His main work contract is with the firm he used to work for, but now he has the ability to pick up additional contracts. Where previously he would have had to entertain a mortgage with an interest rate at least 1% higher than the best on the market and have to pay a fee, now he would be able to meet insurance requirements and get preferred rates. The other change that CMHC has made 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 T1 General Income Tax Returns to support Add Backs of certain write-offs. Those Add Backs can be added to the reported net income, thus increasing the qualifying 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. However, don’t get too excited about those changes…Qualifying for a mortgage when self-employed still has many challenges and a lot of paperwork involved. So bottom line: it is not going to be that easy to get a mortgage while being self employed, however it is going to become a little less difficult for some. If you have any questions or need to discuss further, you can reach me at 647-893-2535 or mortgages @snezhana.ca Sign Up Here for Monthly Mortgage Updates
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