Self esteem
Changes coming with protocol for mortgage approval should satisfy more applicants
Changes are coming to the mortgage approval business that should give people who are self-employed a better shot at landing one.
As a self-employed business owner, Joe Sawler nds it frustrating to think that one of his employees is more likely to get a mortgage than he is.
“And, there’s a lot less hoops to jump through,” added Sawler, of Just-joes Automotive in Charlottetown.
Sawler, 27, has been trying for the past year or so to get approval for a mortgage, and is hopeful changes regarding selfemployed applicants, announced recently by the Canada Mortgage and Housing Corporation, can help.
“When you’re owning a business, markets can shift so quickly … in six months. To have two years of perfect financials in a new, growing business is hard,” he said.
The CMHC changes, or enhancements, are scheduled to come into effect Oct. 1. ey are intended to help self-employed persons with a business for less than two years, or in the same line of work for less than two years, get a mortgage and insurance – transactional and portfolio – coverage.
Carol Swantee, regional manager of client relations for CMHC Atlantic in Halifax, explained self-employed persons have difficulty getting a mortgage because their income sources “may vary or be less predictable” than employed persons.
Once the changes are in place, lenders will be provided with more factors, or scenarios, to assess potential borrowers in cases where it makes sense and is appropriate to do so beyond using a twoyear income average. As well, it will allow potential borrowers more exibility in the documents they can submit to support the income and employment requirements in their application.
The factors include whether the applicant acquired an established business, has sufficient
cash reserves, predicable earnings, previous training and education in the industry and the borrower’s demonstrated history of managing credit.
As well, the changes involve allowing more exibility with respect to the documentation to support qualifying income for self-employed applicants. Examples of the expanded forms of documentation include recent account statements, signed contracts and a Notice of Assessment accompanied by a T1 General. The Notice of Assessment/t1 General can be substituted with a Canada Revenue Agency proof of income statement.
Once assessed by the lender, the application is sent to CMHC for default mortgage insurance for borrowers with less than 20 per cent of the property’s down payment.
Swantee said the enhancements are in line with the National Housing Strategy’s goals to help Canadians nd housing. In this case, the changes are aimed at the estimated 15 per cent of self-employed Canadians.
“We assess all applications based on the overall risk of the application. And it’s important for individuals to be able to demonstrate employment and credit history, and we look at the overall package of that le,” she said. “It’s up to the lender to look at the overall package in assessing that le.”
Sawler and his uncle have co-owned the business since 2013, and renamed it Just-joes in 2014.
He’s dealing with a mortgage broker but has tried working with banks directly.
“I nd with banks, they just plug numbers in the computer, and the computer says no.”
Just plugging in numbers doesn’t account for why a business may have had a slow year, such as purchasing new equipment or during an expansion.
Besides the CMHC changes, he’d also like to see more of a “personal touch” approach with mortgage applicants.
“Every business is di erent. And most business owners can explain why they’ve had a down turn,” he said.
Kim Reddin, a mortgage broker and co-owner of CENTUM Mortgage Partners Inc., in Charlottetown, welcomes the CMHC changes, especially since they ll a gap from previous programs that ended in April 2014 that helped persons self-employed for less than two years get nancing.
“When they took it away, it was a big loss for our industry,” she said.
Reddin also likes the idea that the CMHC is nding ways to work with the Canada Revenue Agency to help confirm an applicant’s income.
As a mortgage broker, Reddin works with clients on their mortgage applications, and then advises on a lender to pursue. She notes one client has been self-employed within the last year, but has good credit, a solid application and 10 years of experience in the industry. And he’s having trouble getting nancing.
“Because he hasn’t been self-employed for two years, it’s an issue,” she said.
Once the changes come into e ect, Reddin said it will be easier for her client to get a mortgage.
“It should be stressed that the client still has to have a solid foundation – good credit history and good cash to fall back on. It’s not just going to be a program for somebody who doesn’t have any assets and has terrible credit but then decided to be self-employed. It’s for a good, solid applicant,” she said.