21 October 2010
CMHC will average your income from the past 2 years to determine your income level, but if it has been increasing for the past 4 years, they will use the last recent year for their calculations.
Anyway, many self-employed individuals prefer to keep their money in business in order to take advantage of certain tax strategies, that’s why sometimes their verifiable income can be not enough to get a mortgage. Of course, you can still get insured mortgage financing using reasonable stated income, but it will cost you more in insurance premium and you have to come up with at least 10% non-borrowed and non-gifted downpayment. The deal is that since April of this year CMHC permits you to state your own income only if you have been in business for less than three years.
Very important to know, that there are two other insurance companies in Canada and they might allow using stated income for self-employed borrowers who are in business for more than 3 years.
Moreover, it often happens so that you have to get mortgage loan insurance if you want to find the best rates even if you have 20% or more for downpayment. In addition to it, insurers recommend lenders to demand higher minimum credit scores for self-employed borrowers.
Yes, it’s quite necessary to have a good credit score. Self-employed individuals, usually, have higher balances on their credit cards, because they are using them for their business. As a result their credit rating naturally declines. So if they’re going to buy a house, maybe it’s a good idea to bring these balances down a few months before going to see a mortgage broker.