# CMHC denied to self employed couple



## dilbert789 (Apr 20, 2010)

I'd like some thoughts on this if anyone can help.

A couple of our friends are looking to move, were pre-approved by the bank for a certain amount, and found a house they really like. On going to finalize numbers they were told that since they are both self employed (one less than a year) that CMHC and Genworth both denied them from receiving mortgage insurance. They'd be looking to put down about 10% as a down payment on a approx 250k house. The couple is currently making more than they ever have and have a good credit rating. 

Is there anything they can do to get around this?


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## balexis (Apr 4, 2009)

Get help from their parents/relatives. They could borrow from them to have enough cash down to avoid CHMC altogether, or ask a parent to co-sign the mortgage maybe?


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## GeniusBoy27 (Jun 11, 2010)

Don't know if they have the ability, but the other option is a LOC or loan from a bank. Considering that you're avoiding the 1% (or so fee from CMHC), and we're talking about a 25K LOC or loan, it's not unreasonable, but is this something they can pay back quickly/have the cash flow to do?


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## dilbert789 (Apr 20, 2010)

GeniusBoy27 said:


> Don't know if they have the ability, but the other option is a LOC or loan from a bank. Considering that you're avoiding the 1% (or so fee from CMHC), and we're talking about a 25K LOC or loan, it's not unreasonable, but is this something they can pay back quickly/have the cash flow to do?


I had mentioned that to them last night, but they didn't seem too keen on making a 1500 mortgage payment and payment's to a LOC at the same time.

I think they're probalby going to have to go with a co-signer. Considering it's really just a technicality, shouldn't be an issue for them.


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## OhGreatGuru (May 24, 2009)

dilbert789 said:


> ...
> 
> I think they're probably going to have to go with a co-signer. Considering it's really just a technicality, shouldn't be an issue for them.


It sure ain't a technicality to the co-signer, who is on the hook if they default. And self-employment is not exactly secure employment. They seem to have gotten some bad advice on their pre-approval, unless they were not up front about their current employment status.

In defence of the insurers, if one partner has been self-employed for less than a year, then presumably they have no proven net income history from their self-employment. They should inquire how long a history they would need, and perhaps reconsider buying at this time.


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## dogcom (May 23, 2009)

I agree I would never co-sign a loan. It is bad enough you have to be responsible and pay off your own debt, I sure wouldn't want the possibility of worrying about the debt of someone else.


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## GeniusBoy27 (Jun 11, 2010)

dilbert789 said:


> I had mentioned that to them last night, but they didn't seem too keen on making a 1500 mortgage payment and payment's to a LOC at the same time.


Why not just a 10 year-loan? We're talking about <$3300/year (or $300/month) for the 1st year, and declining over time? And they're saving $2500 on the CMHC fee.

And their mortgage payments, just off the top of my head, should be on $200 K, roughly speaking $8000/year principal, $8000 year interest (on 4%) = $1333/month.

So, if they can't afford the extra $130 or so, and their cash flow is that tight ... then, they probably shouldn't be buying a home.


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## Shayne (Apr 3, 2009)

GeniusBoy27 said:


> Don't know if they have the ability, but the other option is a LOC or loan from a bank. Considering that you're avoiding the 1% (or so fee from CMHC), and we're talking about a 25K LOC or loan, it's not unreasonable, but is this something they can pay back quickly/have the cash flow to do?


This won't work. The lender will likely insure it even if 20% is used for a down payment and CMHC or Genworth will still decline it.


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## kubatron (Jan 17, 2011)

This is why I hate when people deal with banks and not brokers. I would never pre-approve a self-employed person with CMHC, ever. Pre-approvals are reserved for the a1 clients - the teachers, the managers etc., not the self-employed.

CMHC is a tough one these days. Very tough. If they don't want to go the route of a co-signer their only option is equitable or home trust with 15% down payment.

CMHC's basic rule is 2+ years to 3- years of BFS. Go with genworth, and they'll allow 2+ years for "stated" income.

CMHC and genworth both have accepted deals where a client is BFS for 1 year and full-time for the previous tenure, as long as same industry they are approving of these deals.

PM me for some straightforward advice if you wish.


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## kubatron (Jan 17, 2011)

Banks do not allow (for the most part) unsecured LOCs to be used as down payment.

FYI.


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## Plugging Along (Jan 3, 2011)

kubatron said:


> This is why I hate when people deal with banks and not brokers. I would never pre-approve a self-employed person with CMHC, ever. Pre-approvals are reserved for the a1 clients - the teachers, the managers etc., not the self-employed.
> 
> CMHC is a tough one these days. Very tough. If they don't want to go the route of a co-signer their only option is equitable or home trust with 15% down payment.
> 
> ...


I was going to say that we've never had any problems going through our bank for any mortgage and have been self employeed. We are considered A1 clients, had a large down payment, and had been in the same industry as previous.


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## marina628 (Dec 14, 2010)

I think they should wait until they have the 20% down and another year in business then try again.


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## HaroldCrump (Jun 10, 2009)

marina628 said:


> I think they should wait until they have the 20% down and another year in business then try again.


Except that then the down payment amount will be 15% of the house price and not 20%.
So wait another year.
That is the insanity of the current RE market - buyers are always chasing their tails.


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## marina628 (Dec 14, 2010)

Well as a self employed person I know once you have 2 years tax filing for a business majority of banks consider you stable and so will CMHC.We used CMHC on one property after 2 years and 3 months in business.
He said the wife had only been self employed one year ,wait a year go back to same back and show them how you are doing .Nothing to do with tail chasing just pretty much common knowledge once you hit 2 years the banks will deal with you.Now if you have crappy credit ,carrying balances on all your credit cards etc , you can be in biz 10 years and they won't touch you.


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## OhGreatGuru (May 24, 2009)

balexis said:


> Get help from their parents/relatives. They could borrow from them to have enough cash down to avoid CHMC altogether, ....


Mortgage lenders are not completely stupid. A loan is still a loan, even from family or friends. If you claim it's a gift, they will want a letter from the giver confirming that. I am sure such loans are routinely disguised as gifts, but you have to know the institution's rules to avoid getting caught, and it's still fraudulent misrepresentation.


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## kubatron (Jan 17, 2011)

that's nice, katherine. kudos to you. however my point was that these days, with less than 20% down, self-employed clients are not treated well by cmhc or genworth, so therefore, it's never a given that they will be pre-approved due to this wonderful thing called "reasonability of income" test. furthermore, cmhc and genworth do not allow self-employed who don't qualify to own +1 property (such as a rental), so in your case you probably put down 20%+, right?

moving right along, we're dealing with cmhc here.


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## Cal (Jun 17, 2009)

Another option for the OP is to wait to buy, continue saving, until they have 20% to put down.

There will be other houses to buy....missing out on one isn't the end of the world. Sometimes emotions play too much into these decisions.


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## Berubeland (Sep 6, 2009)

I have to second that CMHC and the banks don't like self employed people. That is my experience. 

I don't agree that rent to owns are a decent alternative to renting or buying for the following reasons. 

1 - The appreciation is written into the price of the future purchase at rates from 5 to 9%

2 - Market rent touted by the rent to own landlord is usually higher than market rent. 

3 - Your money is used to buy the property you have to put in the 10% down. 

4 - Your extra payment credits towards the down payment are used by the landlord to increase their cash flow. 

5 - If this deal goes south and after the term you cannot get the mortgage the landlord is under no obligation to extend your term. They can find another person to "rent to own" the property, the property they purchased with your downpayment. No refunds of purchase credits. 

6 - Divorce or death of one of the spouses. If you bought a property and your mate died, you could sell it and get your money back. Not so if you rent to own and it becomes unaffordable. 

So worst case scenario in a descending markets, you will never be able to close if you bought the house even if you're underwater, you can wait it out. 

I did a post on this subject and there is a calculation in it about how it works out for the tenant. Not Good. 

http://landlordrescue.ca/rent-to-own-investing/

So unfortunately I could not in all conscience recommend a rent to own strategy for any except the Ontario Landlords Association.  Furthermore I double don't recommend it because we are in a what I believe is a descending market and the poor son of a gun who goes for this kind of deal will never be able to get a mortgage on it because the property will be worth a lot less than what he's "put down" on it.


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## davext (Apr 11, 2010)

I agree with waiting for a larger down payment. 

If I was CMHC, I wouldn't want to insure 2 self-employed people that couldn't save 20% for a $250,000 house. We're talking about $50,000 which is a small amount to prove that you can be trusted.

As a Canadian tax payer who ultimately ends up backing CMHC, I'm glad they are not insuring these types of mortgages. 

I'm self-employed too.


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## kubatron (Jan 17, 2011)

cmhc *hates* self-employed, here's why. last year in april they changed their rules on bfs clients. as of now, if a client is self-employed for more than 3 years, we must use their NET incomes to qualify. what a joke. most bfs clients show a low net income to offset being self-employed and to deduct expenses. the only people who can claim "stated" incomes are those with 2 years or more, and 3 years or less BFS status.

genworth allows for stated incomes on all levels of status, however.


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## marina628 (Dec 14, 2010)

We are both Self Employed ,our income and the business income is completely different. TD Bank uses our personal Tax assessments when we do our mortgages.I can see a sole proprietor having some issues though .


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## Dana (Nov 17, 2009)

davext said:


> I agree with waiting for a larger down payment.
> 
> If I was CMHC, I wouldn't want to insure 2 self-employed people that couldn't save 20% for a $250,000 house. We're talking about $50,000 which is a small amount to prove that you can be trusted.
> 
> ...


+1


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## canadianbanks (Jun 5, 2009)

davext said:


> I agree with waiting for a larger down payment.
> 
> If I was CMHC, I wouldn't want to insure 2 self-employed people that couldn't save 20% for a $250,000 house. We're talking about $50,000 which is a small amount to prove that you can be trusted.
> 
> ...


I'm also glad that they no longer insure everybody who asks for mortgage. Don't get me wrong I'm self-employed, but if we want to keep our banking system safe, prudent lending is the way to go.


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