5 février 2019,
Are you a self-employed individual who has always dreamed of being able to buy your own house?
Well, your dream has become a little easier to achieve thanks to Canada Housing and Mortgage Corporation!
Being self-employed definitely comes with many benefits but in terms of buying a house or condo, it seems more complicated compared to salaried employees.
After a tightening of mortgage regulations for self-employed workers in 2014, CMHC has just announced that it will now be easier for entrepreneurs and self-employed individuals to finance the purchase of a property!
Are you curious to know all the details? Don’t miss what follows next!
If you want to speak with a real estate broker who is familiar with the situation of self-employed individuals, fill-out the free online form in just a few minutes and compare 3 qualified professionals!
Can a self-employed person buy a house in Quebec?
This is THE QUESTION most frequently asked in mortgage brokerage offices by entrepreneurs and self–employed persons.
Can someone who is self-employed and not as financially secure buy a house in Quebec?
The answer is YES!
Indeed, it is quite possible for self-employed workers to take out a mortgage to buy a property.
However, lenders are more stringent and analyze more strictly the documents of self-employed individuals.
Because the salary is not taken into account in the same way as employed individuals, other supplementary documents are required.
We will present below the various documents that a self-employed individual must have on hand to obtain a mortgage for a home purchase.
For the moment, it is understandable to ask: why is it more difficult for self-employed individuals to buy a house in Quebec?
Why is it harder for self-employed people to buy a property?
Historically, it has been more difficult for self-employed individuals to buy a house compared to salaried employees.
What is the reason for the difference in treatment?
In fact, it boils down to a few simple reasons as follows :
✓ A self-employed individual has no job security.
✓ A self-employed individual has no guaranteed income.
✓ A self-employed individual does not necessarily have a stable income.
✓ It is more difficult to assess the risks of a loan to a self-employed individual.
It is also important to understand that a self-employed person must prove himself before applying for a loan with a bank.
A proof income (for 2 years) must be presented to obtain mortgage insurance in order to pay less than 20% down-payment of the purchase price.
Even with a 20% downpayment or more, banks are more cautious and require further information before approving the loan.
However, CMHC has taken a step in a new direction in July 2018 when it announced new mechanisms to access mortgage insurance more easily for self-employed individuals.
Below are the changes that have been established and how they can benefit you!
CMHC introduces new criteria to facilitate the purchase of a property for self-employed workers (2018)
CMHC announced in July 2018 that it will introduce more flexible regulations and new criteria to facilitate the purchase of a property for self-employed workers.
Among these changes, the most important and most notable are:
CMHC will provide a list of the new criteria which will be used by lenders in deciding whether to lend to a client or not who has been self-employed less than 24 months.
In the past, self-employed workers or entrepreneurs who have been self-employed for less than 24 months could not take out a mortgage loan insurance and must put down at least 20% as a downpayment.
With the new criteria, the situation is expected to change and become more suited to the reality of self-employed workers.
In addition, CMHC announced that it will now accept more documents and evidence to satisfy these criteria to meet income and employment requirements.
As a result, it will likely be easier to prove sources of income and revenues of self-employed individuals.
The number of self-employed workers is in an upward trend with millennials expressing a greater interest in moving toward this direction.
CMHC seems to understand this reality and is sending the message to financial institutions by relaxing its rule for mortgage loan insurance for self-employed workers.
But what documents will you need to obtain financing of a property if you are a self-employed individual?
What documents are required to obtain a mortgage for a self-employed worker?
Banks and other lenders require more supporting documents from self-employed workers compared with salaried workers.
Below is a list of the principal documents required to evaluate your eligibility for a mortgage loan:
- Proof of income (customer invoices, sales receipts, online sales, etc.)
- Proof of expenses incurred in generating income
- GST return
- T1 tax forms
- Notice of assessment (ADC)
- Contracts and list of customers
- Credit check
- Proof of RRSPs, TFSAs, and other savings
As you can see, you will need many documents! The income of a self-employed individual is not calculated in the same way as a salaried employee since it is often necessary to deduct expenses from the income generated during the year.
The best tips for self-employed workers when buying a house
There are no magic tricks to help self-employed individuals to buy a house but new criteria from the CMHC has made it a bit easier!
Below are 3 tips to facilitate your home purchase in Quebec if you are self-employed.
Maintain excellent credit because your credit rating is extremely crucial in evaluating a loan application from a self-employed person. Pay your credit card balances on time, avoid incurring bad debts, and make sure to optimize your credit situation. Late payments could ruin your chances of getting a loan.
Have patience! If you are self-employed for only a few months, you don’t benefit from applying for a loan with a lender because your chances are rather slim. Expect to have at least 24 months of experience in order to have adequate proof of income to earn the trust and confidence of your lender.
Save as much as possible! Self-employed individuals who want to buy a house fast are advised to save up as much as possible in order to have the largest possible downpayment. Lenders will be much less cautious about approving you for a mortgage if you have 20% downpayment or more. For them, it is less risky and you are more likely to obtain a mortgage.
Are you self-employed and want to buy a house? Fill out our free form so that an expert can take care of your project!
Are you self-employed and finally want to buy a house or condo?
That is great because we have real estate brokers who specialize in financing for self-employed individuals who can help you, free of charge!
Simply fill out the 100% free online form and we will send you 3 offers from highly-qualified brokers who can help you in your home purchase!
Their services are free from start to finish, take advantage!
With the new and more flexible rules, it is a good time for you to look for your dream house and get financing for your home purchase.
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