Clarification to Government Rule Changes
February 16th the Department of Finance Announced New Rules for obtaining mortgage financing.
The new rules are as follows with a brief explanation of their effect:
- Mortgage Applicants opting for a mortgage term less than 5 years or for any variable rate terms will be required to qualify using the 5 year fixed posted rate. Click Here for the exact wording from CMHC explaining this.
This will have the effect of forcing buyers who stretch how much they can qualify for into 5 year fixed rates instead of the shorter term or variable alternatives all of which normally prove less expensive than the 5 year rate. However, for buyers willing to accept a 5 year fixed rate, it will normally have only about a 5% effect on how much they could qualify for. Most buyers don’t max themselves out so it will primarily have the effect of removing the buyers who have already been overextending themselves. - Minimum down payment requirements for non-owner-occupied homes will increase to 20% from 5%, and the way that rental income is considered has been scaled back as well.In our estimation, this is the change that will have the biggest impact. While only about 4% of the home buyers in Canada are purchasing rental properties with less than 20% down (to do so carries a very expensive CMHC/Genworth premium) it will certainly cut back on those speculative buyers. This should have a positive mitigating effect on any “housing bubble” that may or may not be happening.
- The maximum amount Canadians can withdraw when refinancing their mortgages will be reduced from 95% to 90% of the value of their homes. |
This will have no effect on people wishing to buy a home, but will limit the amount of equity one can take from their home.
Greetings,
In the past a person did not have to have of income just equity to qualify…has that all gone?
Thanks for your help
Thanks for the comment Brian! The government rule changes apply primarly to CMHC and Genworth insured mortgages. Normally that is where the down payment (or equity) is less than 20% (formerly 25%).
There are still Non-Income-Qualification mortgages available out there, although they require a larger down payment. Some lenders will do it with as little as 20% down, while others require as much as 35% down payment. The larger the down payment on these programs, the more likely you will have access to the best rates.
There is a program, going forward available only through Genworth, that allows self employed individuals to “self declare” their income. This means they do not have to use the normal means of proving a down payment, however the income that is “self declared” has to be reasonable and they may ask for some supporting paperwork to confirm your income is legitimate. This is most useful for borrowers who make more money than they declare on their taxes due to legitimate write-offs. It does not work for commissioned borrowers, those who receive tips, and is not designed to assist those who do not file an honest tax return.
Thanks for your response.
So if I submit my T4A’s etc without expenses deducted is this how it works for the self employed or is it the net amount after expenses. So in my case both my wife and I deduct 2 home offices expenses plus second phone, business books etc etc etc which the average person does not do to qualify for a mortgage,
Hi Brian,
For verified income, we usually use the net income, Line 150 off your tax return. However, there are certain expenses that we can add back into your income such as business use of the home, the vehicle lease (if paid by your corporation), appreciation. Alternatively we are also allowed to add 15% to your income to compensate for deductions.
On a self declared program the T4A may be enough to support the income. Go ahead and fill out the online application form and we can look into in more detail.