Even as mortgage rates in Canada continue to set new lows and housing markets continue to heat up, new rules are being handed down that will make it harder for some Canadians to purchase the homes of their dreams. Though these rules are intended to better protect lenders, mortgage insurers, and borrowers from potential defaults, they will also make it harder for Canadians with self-employment income and/or with less cash on hand for down payments to qualify for mortgages.
Income Verification and Cash-Back Mortgage Rules Mean Shifting Opportunities
The new rules, which will go into effect on June 30 or shortly thereafter, affect Canadian homebuyers in several ways. The two most important issues at stake are income verification requirements for lenders and cash-back down payments on mortgages for borrowers who cannot provide a 5% down payment from other sources.
In the case of income verification, the actual change is relatively minor, as the new rule simply restates and reinforces guidelines already established by the Canadian Mortgage and Housing Corporation (CMHC), the largest insurer of mortgages in Canada. Under the newly stated rule, all lenders will be required to obtain third-party verification of income, “including substantiation of employment status and income history.” For self-employed Canadians and other homebuyers with non-traditional incomes, this can make the qualification process much more difficult.
Cash-back down payment mortgages where buyers are unable to provide a 5% down payment on their own will be eliminated entirely. Very few lenders still offered these loans, but this new rule will bring the credit unions still providing such loans in line with larger banks and mortgage lenders.