New BFS mortgage insurance rules change tomorrow
The new CMHC rules for self-employed borrowers take effect tomorrow and pose new challenges for this category of client.
First off, self-employed borrowers with more than three years in the same business who apply for a mortgage using stated income, as well as commissioned-income borrowers, are now required to provide to provide traditional proof of income (or "third party validation") through documents like financial statements, contracts and T4s.
Those who have recently become self-employed and don't have third-party validation can still apply for a mortgage, but have to come up with a 10 per cent down payment instead of five per cent. Refinancing will also be cut to 85 per cent loan to value instead of the previous 90 per cent.
Brokers have been giving the rule changes mixed reviews. Mark Fidgett, owner of Verico Notapennydown.com said the latest move was "off the wall" and hopes that if enough people talk about their displeasure with the changes, the CMHC might alter its decision.
"I don't think this was a good decision - it doesn't make sense now," he said, adding it also makes writing off income for tax purposes more difficult for BFS clients.
Dominion Lending Centres broker Stephen Gilmour, on the other hand, agrees with CMHC's decision.
"The more people who default on loans, the worse the market becomes," he said, noting he felt a lot of self-employed people have qualified for mortgages when they shouldn't have. "This provision for self-employed is going to put the right people in the right structure of home."