Important Information for Purchasers of Residential Homes: Understanding CMHC’s New Changes

Canada Mortgage and Housing Corporation (CMHC) has cancelled its Second Home Mortgage Insurance Plan effective May 30, 2014. It has also added a new restriction to its self-employed mortgage loan policy. As of May 30th, self-employed Canadians, who are purchasing a residential home with less than 20% down payment, will need to have "3rd Party Income Validation" to qualify for a CMHC 'high-ratio' mortgage 

What Does This Mean for Purchasers of Residential Homes?

To qualify for a high ratio mortgage (less than 20% down payment) and not need 3rd Party Self-Employment Income Validation purchasers must submit the necessary application/paperwork to CMHC before May 30th, 2014.  However, if they miss this deadline, from thereon, in, they will have to submit 3rd Party Self-Employment Income Validation. 

Benefits for Buyers of Residential Homes

This new change ensures that self-employed individuals have the credible income to support the purchase of their new home, and will not fall prey to financially overextending themselves now and in the future.

Historical Data

In 2005 CMHC began offering second home mortgage plans for buyers who were purchasing a second owner-occupied home throughout Canada.

In 2007 CMHC created the loan program for self-employed Canadians and offered changes that increased amortization periods to as long as 40 years. In the recent past, the government has reversed that and now restricts loan amortization periods of up to only 25 years.

CMHC stated that Second Residential Home purchases plus Self-Employed Purchasers Without 3rd Party Income Validation accounted for only 3% of its total business volume. Clearly, this minority is not something that CMHC considers statistically significant.

What Are The Options for Self-Employed Residential Home Buyers?

In light of this change, it will be interesting to see whether self-employed purchasers now will turn to private lenders rather than the traditional route of securing mortgage loans through CMHC. It is also important to watch how private lenders will respond to CMHC's loan policy revision and what they will offer to self-employed buyers.