09 march 2010

For one thing, it’s reducing the maximum allowable loan-to-value.

Self-employed borrowers who choose to apply under this program, and not verify their income using traditional means, will have to put down 10% when purchasing a home (instead of 5% today).

Stated income applicants who wish to refinance will be limited to 85% loan-to-value (instead of 90% today).

CMHC says:

* The Self-Employed program is intended for self-employed borrowers “who have difficulty providing documentation for their current income level.” These are often people who’ve recently begun to work for themselves.
* Self-employed borrowers in the same business for over three years will no longer be eligible for approval without traditional proof of income.
* A business license, GST license, or articles of incorporation will be required to validate the applicant’s length of self-employment.
* Commissioned employees are no longer eligible for approval under the Self-Employed program.

As insurers pull back further from the stated income market some expect uninsured lenders to eventually fill the void.  Self-employed borrowers with hard-to document income will then pay notably higher rates and fees as a result of using such programs.