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The Canadian Mortgage and Housing Corporation (CMHC) is moving yet again to tighten the home mortgage market with changes that will make it more difficult for certain Canadians to obtain government-secured financing for real estate purchases. We will seek further updates on how this may impact you, but the changes would appear to affect both the self-employed and those interested in owning a second home.

Mortgage Loan Calculators

As of May 30, 2014, CMHC will no longer insure purchases by self-employed workers without third party income validation. I interpret this to mean that the “Stated Income” programs designed for self employed individuals with good credit and a history of managing their financial affairs, where proven income was not previously required, will cease. Proof of income I suspect, will now be required based on previous income tax returns, or some other form of third party verification. This will not be good news for individuals in industries with a “cash” component to their income or for new entrepreneurs starting self-employment.

It is estimated that the changes will affect less than three per cent of the units CMHC insures. The changes are part of the agency’s continuing review of its products and core mandate to support stability in the housing market, but I am of the opinion that this may seriously impact individuals seeking self-employment opportunities and could limit new job creation initiatives arising from these self-employment opportunities. It would appear that new entrepreneurs that can’t show an immediate or substantial profit can put the idea of home ownership on hold.

Why add another hurdle in the pursuit of self-employment opportunities? You can start a new business or you can purchase a new home but you can’t do both?

If you wish to own a second home your minimum down payment requirements will change from 5% down to 20% down. In effect all second homes, be it for personal use or other, will be classified like a rental property. This will impact both the cottage market and those individuals that may want to rent out their current home as they seek to upgrade to a larger personal residence with a minimum down payment. We may see an exception to this rule if the first home is not originally CMHC ensured.

The Finance Department has tightened mortgage rules on four separate occasions in the past several years requiring stricter enforcement and management of loans in an effort to weed out marginal buyers and excessive speculation in the housing market. This new initiative will eliminate a lot of the first timers seeking to enter the rental market, but I am not sure this is necessarily a good thing.  Why is our government attempting to squash the citizens trying to make a better life, by making it more difficult to earn passive investment rental income? Does this initiative really solve the problem it reports to address?

We welcome your comments.