Additional changes were announced this morning from CMHC to a few of their own products, these changes are also coming into effect April 9th.
1. TDS calculation for rental income has been changed to only include 50% of the gross rental income which is added back to income rather than offset.
Currently you can use 50%-80% of the rental income to help qualify for the mortgage that you have coming in. For example if you are renting out a place for $1200, you can use $600 (50%) to help qualify. With the new rule If you are renting out the same place for $1200 and your operating costs (mortgage payment, taxes, ect.) is $1100 per month, you can only include 50% of the $100 profit per month to help qualify.
2. CMHC’s self employed program will no longer be eligible for borrowers with more than 3 years in the same business. Instead they will need to rely on more traditional third-party income proof.
Currently CMHC will use a stated income and look at your business financials to verify the income that the business makes. With this new rule, if you have been in the business for 3 or more years, they figure you should have you business established enough to qualify using traditional income that is claimed to the government (average of the last 2 years notice of assessments).
Both of these new rules will make it more difficult to purchase a home if you are self-employed, or if you are looking into getting a rental property.
In February, the Bank of Canada announced that they will only look at rental properties with 20% down payment, so this would remove CMHC with some banks canceling the new change that CMHC just announced today. Some lenders Back End Insure, meaning all their mortgages are insured the bank will just pick up the fees for the insurance. Also some lenders will still follow CMHC’s guidelines even though even when they are not using them.
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