During the last 4 years we have seen the mortgage rules tightened up by both the Government of Canada and CMHC (the primary mortgage insurer in Canada) on a regular basis. Now CMHC is back at it again by completing eliminating two programs that have been offered for quite a few years. Both the CMHC second home program and “stated income” program for self-employed borrowers will be eliminated at the end of May. In this article we discuss the changes to these CMHC home buyer programs.
In January 2005, CMHC’s Second Home product was introduced to allow qualified borrowers to obtain CMHC-insured homeowner mortgage loan financing for the purchase or refinance of a second home.
CMHC’s product for self-employed borrowers without traditional third party income verification was introduced in 2007 for self-employed individuals who had difficulty providing traditional forms of documentation to support income verification. These were typically borrowers who had recently become self-employed.
CMHC’s product for Second Home will be discontinued. CMHC will now limit the availability of homeowner mortgage loan insurance to a maximum of one residential property (1-4 units) per borrower/co-borrower at any given time. It is expected that Approved Lenders will verify, prior to submitting an application to CMHC, that the borrower(s) does not have an existing CMHC-insured homeowner loan. The maximum does not apply to other properties that are not insured under a CMHC Homeowner Mortgage Loan Insurance product or if the borrower sells a home that had CMHC Homeowner Mortgage Loan Insurance, or properties with loans insured under CMHC’s Rental Insurance products.
CMHC’s product for self-employed borrowers without traditional third party income validation will be discontinued. CMHC will continue to offer mortgage loan insurance for self-employed borrowers with traditional income validation. Approved Lenders are required to validate the borrower’s income by reviewing the individual’s Canada Revenue Agency (CRA) Notice of Assessment (Avis de cotisation applicable for Quebec residents only), audited financial statements, or review engagement financial statements prepared by practicing accountant. Income is typically averaged over the previous two-year period.”
What does this mean for you?
For those of you that already have an insured mortgage with CMHC and want to buy another property on an insured mortgage, you will not be able to do so through CMHC insurance. You will now be required to put down 20% on your second property. There are two other insurers in the market (Genworth and Canada Guaranty) and we have not received any word from them on whether or not they will follow suit. For now, we may be able to get you in with as a low as 5% down on a second home with one of these insurers.
For those of you that are self employed, we have been warning you over the last couple of years that it will be necessary to start declaring more income on your taxes so that you can qualify for your mortgage with the income you declare. CMHC will no longer allow us to “state” a higher income than you declare on your taxes so it will become increasingly difficult for you to borrow money. Once again we have not received word from either of two other insurers on whether or not they will follow suit. For now, the stated income programs are still available with the other insurers.