CMHC Guidelines for Self-Employed Premiums

Navigating details around the CMHC guidelines for self-employed premiums can be a challenge. Although self-employed individuals account for 15% of the total Canadian labour force, many self-employed workers find it difficult to access the right financing to buy a home, for a variety of reasons. 

If you’re self-employed and are thinking of buying your first home or a new home, then you’ll have to get to know the self-employed mortgage rules. 

The Canadian Mortgage Housing Corporation (CMHC) provides certain flexibility for self-employed borrowers. In line with the National Housing Strategy, CMHC makes it easier for self-employed workers to meet the income and employment requirements at no additional costs. 

To help improve your chances of qualifying for a mortgage as a self-employed worker, you should become familiar with what lenders require and how CMHC works in your favour.

We’re going to take a look at everything you need to know about CMHC if you’re self-employed and looking for a mortgage. 

What is CMHC?

CMHC (or the Canadian Mortgage Housing Corporation) supports Canadians and financial institutions by providing mortgage insurance products to the bank. This allows them to provide mortgage loans for people who have less than a 20% down payment, down to the 5%-10% range, depending on the purchase value of your new home.

Other institutions have similar offers, like Sagen (formally Genworth Financial) and Canada Guaranty, but CMHC is the most common. 

There are a few differences when applying for CMHC loans if you’re self-employed. 

What do lenders consider a self-employed borrower?

You will be considered a self-employed borrower if you:

• Run a business alone, with a partner, or as a corporation
• Receive 25% or more of your income from your business
• Work on short contracts for different employers 
• Are paid solely on a commission basis

You’re not self-employed if you receive a regular paycheck from an employer. If you’re doing part-time work for more than one employer, you aren’t considered self-employed.

How is CMHC different for self-employed workers?

CMHC wants to make it easier for self-employed Canadians to get a mortgage. This is why they’ve decided to support self-employed workers who may have originally struggled to get a mortgage. 

But what’s the difference between applying for CMHC as a regular worker and a self-employed worker?

Basically, CMHC looks for different documents and proof of income/ability to repay loans from self-employed individuals compared with regular workers.

CMHC Self-Employed allows all qualified self-employed borrowers to gain access to CMHC mortgage loan insurance at no additional cost.

As a self-employed worker you also only have to pay a down payment of 5% (up to the first $500,000) opposed to the usual 20% which makes it a lot easier to get a home sorted. 

What do lenders want to see if you’re self-employed?

When you apply for a mortgage as a self-employed worker, some lenders might ask for proof that your business is growing. 

When calculating your mortgage, lenders usually average your earnings over a minimum of two years so they can get an idea of what your finances are like. 

As a self-employed borrower, usually you have to have a down payment of at least 20% but with CMHC you’ll be able to have a down payment as little as 5%.  

You’ll also need to provide your lender with the following documents:

• Business & financial statements from the 2-3 years of business 
• Personal income & dividend averaged over the past 2 years as reported on your T1
• Proof you’re paying rent on time
• Good credit
• A personal balance sheet showing your assets, such as stocks, RRSPs, savings, TFSAs, and debts, like car loans

It’s best to make photocopied sets of all these documents and keep them in one package so you can easily hand them to lenders and mortgage brokers (or scan and email them). 

Recent changes to CMHC mortgages for self-employed individuals

There’s now more flexibility for recently self-employed workers

CMHC offers flexibility for self-employed borrowers who’ve been in business for less than 24 months, or who’ve been working in the same line of work for under 24 months.

There are now more documents that can support income verification

The CMHC Self-Employed Program now accepts a wider range of documentation to support self-employed income for qualifying home buyers for a mortgage.

The list of documents now considered for self-employed borrowers will include:

• Notice of Assessment supported with the T1 General Tax Return Form
• Canada Revenue Agency Proof Of Income Statement
• Form T2125 (statement of business activity or statement of professional activity)

What do you need to apply for a mortgage if you’re self-employed?

You might be able to qualify for a mortgage based on how much you earn as a self-employed worker if you: 

• Have good credit and at least a 12-month history of good credit
• Have no outstanding debt
• Are authorized to work in Canada

So, if you’ve paid yourself an income for the past two years, filed your taxes, and don’t owe any money, then you should easily be able to apply for a mortgage as a self-employed worker.

What will lenders look for when it comes to your income?

Lenders will look at what your income is, as stated on Line 150 of your tax return. They don’t look at what you grossed for the year. They only look at what you’ve paid yourself. 

So if you grossed $250,000 but paid yourself $25,000, then your lender will assume your income is $25,000, and you can afford a home that a $25,000 income could carry. 

You’ll usually qualify for about five times your income if you have had this income for the past two years. Lenders always average your income over a 2-year period, and they’ll be eager to see either a steady or increasing income over the 2 years. 

CMHC’s newer lending program for self-employed borrowers is for income registered for 2 years or less. Before this, a lender had to see at least 2-years of self-employed income to qualify a self-employed lender.

This program, however, is only available for homes under $999,999, and it has a maximum of 25-year amortizations with credit. 

Mortgage eligibility requirements for self-employed workers

Here is a quick table to help you figure out what the eligibility requirements are for self-employed workers. 

Mortgages can be difficult to understand at the best of times, let alone when you’ve got extra hoops to jump through. 

We hope this guide has made understanding CMHC for self-employed individuals a bit easier, but if you have any questions feel free to get in touch with our team today. 

CMHC can help you get your dream home faster and we want to help you find it – contact your local St. Paul or Bonnyville CENTURY 21 agent and let’s find the right home for you!