Approximately 15% of the Canadian labour force is self-employed and may have difficulty accessing financing to buy a home, since their income sources may vary or be less predictable than those of employed borrowers.

CMHC provides enhanced flexibility for satisfying income and employment requirements for all self-employed borrowers at no additional cost. This is in line with the National Housing Strategy commitment to address the housing needs of Canadians along the housing continuum.

Download our one page CMHC Self-Employed program fact sheet (PDF).



FEATURES

Self-employed borrowers with documentation to support their income have access to all existing 1 to 4 unit CMHC Mortgage Loan Insurance programs subject to the same criteria and insurance premiums as borrowers with more predictable income.

These guidelines for satisfying income and employment requirements for self-employed borrowers are offered by CMHC. However, implementation of CMHC guidelines may vary from lender to lender.

PROGRAM-SPECIFIC CRITERIA

  • Recommended minimum 24 months operating the business or in the same line of work (see Enhancements for recently self-employed section below)

DOCUMENTATION TO SUPPORT LENGTH OF BUSINESS OPERATION

  • Income tax returns supported by the NOA
  • Business credit reports
  • GST returns
  • Active business account statement
  • Financial statements accompanied by a Review Engagement Report signed by a practicing accountant
  • Business license or articles of incorporation
  • Audited financial statements

DOCUMENTATION TO SUPPORT INCOME

  • NOA accompanied by T1 General (for verification purposes and to determine breakdown if borrower has several sources of income )
  • Proof of Income (POI) (for verification purposes)
  • Statement of Business (T2125)

Recognizing that self-employed borrowers may deduct expenses, income from self-employment in the case of sole proprietorships or partnerships may be grossed up by 15% or by using an “add back” approach of eligible deductions.

If the borrower has several sources of income the NOA should be accompanied by the T1 General to determine the source of income and if any of the income may be grossed up.

ENHANCEMENTS FOR RECENTLY SELF-EMPLOYED

For recently self-employed borrowers who have been operating their business for less than 24 months, or have been in the same line of work for less than 24 months, additional eligibility factors to support the decision to lend could include:

  • Acquiring an established business
  • Sufficient cash reserves
  • Predicable earnings
  • Previous training and education
  • Borrower’s demonstrated history of managing credit

Documentation to support income verification will depend on each borrower’s unique situation and financial circumstances but include:

  • Previous employment documentation based on type of income
  • Recent account statements
  • Business documentation
  • Signed contracts

ELIGIBILITY REQUIREMENTS APPLICABLE TO ALL PROGRAMS

Eligible borrowers

Individuals who are Canadian citizens, permanent residents of Canada, or non-permanent residents who are legally authorized to work in Canada.

Loan-to-value (LTV) ratios

For homeowner loans (owner-occupied properties), the loan-to-value ratio for 1 – 2 units is up to 95% LTV. For 3 – 4 units, the ratio is up to 90% LTV.

For small rental loans (non-owner occupied), the loan-to-value ratio for 2 – 4 units is up to 80% LTV.

Minimum equity requirements

For homeowner loans, the minimum equity requirement for 1 – 2 units is 5% of the first $500,000 of lending value and 10% of the remainder of the lending value. For 3 – 4 units, the minimum equity requirement is 10%.

For small rental loans, the minimum equity requirement is 20%.

Purchase price / lending value, amortization and location

For both homeowner and small rental loans, the maximum purchase price / lending value or as-improved property value must be below $1,000,000.

For homeowner loans, CMHC-insured financing is available for one property per borrower/co-borrower at any given time.

The maximum amortization period is 25 years.

The property must be located in Canada and must be suitable and available for full-time, year-round occupancy. The property must also have year-round access (via a vehicular bridge or ferry if it is on an island).

Traditional and non-traditional down payments

A traditional down payment comes from sources such as savings, the sale of a property, or a non-repayable financial gift from a relative.

A non-traditional down payment must be arm’s length and not tied to the purchase and sale of the property, either directly or indirectly, such as unsecured personal loans or unsecured lines of credit. Non-traditional down payments are available for 1 – 2 units, with 90.01% to 95% LTV, with a recommended minimum credit score of 650.

Rental income

Whether the property is owner occupied or non-owner occupied, subject to an MLI application or not, we offer different approaches to rental income for qualification purposes.

Find out more about the approach(es) that can be used to calculate rental income and the inputs to consider when calculating the debt service ratios.

Creditworthiness

At least one borrower (or guarantor) must have a minimum credit score of 600. In certain circumstances, a higher recommended minimum credit score may be required. CMHC may consider alternative methods of establishing creditworthiness for borrowers without a credit history.

Debt service guidelines

The standard threshold is a gross debt service (GDS) ratio of 35% and a total debt service (TDS) ratio of 42%. The maximum threshold is a GDS ratio of 39% and a TDS ratio of 44% (recommended minimum credit score of 680). CMHC considers the strength of the overall mortgage loan insurance application, including the recommended minimum credit scores.

Interest rates

The GDS and TDS ratios must be calculated using an interest rate that is either the contract interest rate or the Bank of Canada’s 5-year conventional mortgage interest rate, whichever is greater.

Advancing options

Single advances include improvement costs less than or equal to 10% of the as-improved value.

Progress advances include new construction financing or improvement costs greater than 10% of the as-improved value. With Full Service, CMHC validates up to 4 consecutive advances at no cost. For Basic Service, the Lender validates advances without pre-approval from CMHC.

Non-permanent residents (homeowner loans only)

Non-permanent residents must be legally authorized to work in Canada (with a work permit). Mortgage loan insurance is only available for non-permanent residents for homeowner loans for 1 unit, up to 90% LTV, with a down payment from traditional sources.

Non-permanent residents are not eligible for alternative methods of establishing creditworthiness. In cases where a credit report is not available, a letter of reference from the borrower’s financial institution in their country of origin may be considered.

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Disclaimer

This material is a quick reference tool for CMHC’s common Mortgage Loan Insurance. Additional conditions may apply.

This information is subject to change at any time. Please verify with CMHC that you have the most up to date information before the loan is processed.

Date Published:: October 1, 2018