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New Mortgage Rules Making it Even Harder for the Self-Employed

The new mortgage rules are making it harder for anyone to get a mortgage. But when it comes to self-employed mortgages, loans that have been harder to come by today anyway, it’s making them almost impossible. Just ask Pauline Kendall from Vancouver, who owns three homes and a condo, yet can’t get financing to purchase another to add to her portfolio and increase her income.

Kendall works as a contractor and landlord for the four buildings that she owns, and that rental income is the only income that she makes. The more homes she rents out, the more money she makes. But, she may have reached her cap.

“The federal government is trying to protect us from ourselves,” she said. “It’s interesting times to have four properties in East Vancouver and not have a bank interested in financing a purchase.”

They’re not interested for many reasons. The first is because lenders are becoming extremely strict with their lending standards. Only the very best and most qualified lenders can obtain a mortgage with the major banks, and that means having at least a 20 per cent down payment. Without it, buyers are forced to purchase mortgage insurance, something that is expensive and renders all that rental income practically useless.

“Now, no matter what we own, how much equity we have, we just don’t fit under the new rules,” says Kendall.

Three of the homes she owns are worth over $1 million, and the condo $500,000. Still, lenders just aren’t interested. And the fact that Kendall is self-employed doesn’t help. Self-employed mortgages are one of the types that has fallen into the “extremely risky” in the past year or so; and the “near impossible” since July when the new rules went into effect.

This is because, under CMHC standards, income verification is crucial to the mortgage approval process; and rental income is one of those that’s simply difficult to verify.

Garth Ellis, a mortgage broker in Vancouver, says that CMHC evaluations also make it much more difficult for the self-employed, especially landlords, to get a mortgage. This is because while rental income of $1,000 a month is enough to support a mortgage of $200,000, by CMHC standards, that income is only enough to qualify a buyer for a property worth $34,000.

Kendall’s only option was to either back off on buying a new property, or face an expensive refinance on her own home. She’s decided to hold off for now. But with these mortgage rules not going anywhere for the time-being, it’s certainly going to get even harder for the self-employed to get a mortgage. At least from a major lender operating under CMHC standards of lending.

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