New proof-of-income policy to take effect May 30
By Mark
Schadenberg
Who is pointing
fingers?
It would appear that
the left hand is talking to the right hand more and more when federal
regulations and departments are concerned.
In simplest terms, and
in my personal interpretation, a self-employed person works very hard
to legitimately reduce their income in mathematical means to minimize
the income tax they may have to pay annually. Self-employed folks
hold on to the box that their steel-toed boots were purchased in –
the box becomes a sturdy filing cube for receipts. Equipment must be
depreciated, mileage tabulated, real estate courses paid for,
computer ink is purchased, and every nickel is stared at.
Then, when it comes
time to buy a home and use the qualifying ratio of total debt service
(TDS) ratio or a comparison of the family income to fixed expenses,
the self-employed entrepreneur must then re-balance the books and
prove they can afford to purchase their abode at 123 Adobe Way.
The Canadian Mortage &
Housing Corporation (CMHC), which is a federal government agency in
existence to protect all high-ratio mortgage home buyers and the
lending institutions simultaneously (Otherwise a person with only 5%
down would be usually deemed too high a risk no matter what their
income or credit beacon score), modifies it current structure /
guidelines by placing even more emphasis on the 'income proof' nature
of a self-employed person's ability to buy a home – ie qualify for
a mortgage if they have less than 20% as a downpayment.
Kitchen Table
Construction
Read all the links
below, but it would appear – to me anyway and I'm only guessing at
one story behind the story – is that this is one more method of the
feds (Revenue Canada) from stopping under-the-table deals. In theory,
I could list your house for a low percentage and receive (partial)
payment with that two-year-old large screen TV you were planning to
sell anyway to upgrade for your new recroom. Or, you're downsizing,
so your Realtor can assume your riding lawnmower in lieu of full
commission. I do not operate in this fashion and I'm sure office
broker/owners would be livid if this practice was ever discovered.
I'm just throwing out
ideas here, but it certainly will become more difficult for an
independent contractor from even filing their own income tax
statements as CMHC wants a third-party assessment of your financial
figures. This doesn't mean a CPA will audit your books, but the onus
on supplying 'true numbers' to your banker for mortgage purposes will
rise. Keep in mind, your lending institution can say 'yes to the
address' (bad pun I realize), but CMHC has the final thumbs up and
plays, therefore, the role of the bridesmaid.
I have contacts at all
local lenders (mortgage brokers, banks, credit unions), so call me if
you want more details. The new rules apply for new mortgage business
after May 30.
By the way, I agree
with the other CMHC change which applies to buying income property.
On one hand, you could say an entry-level investor should be
congratulated for entering the rental world as the economy needs more
and more residential 'landlords' to supply accommodations for people
unable to purchase a home.
However, and it's a
significant sway here, it truly is amazing to see how rules have
tighten so quickly, but previous requirements were likely too loose
such as buying a home with zero downpayment and a 35-year
amortization.
The Toronto Star story
below writes:
The
changes are part of the agency’s continuing review of its products
and core mandate to support stability in the housing market, CMHC
said in a statement.
“As
part of the review of its mortgage loan insurance business, CMHC is
evaluating its products and services to ensure they are aligned with
these objectives,” Steven Mennill, senior vice-president of
insurance, said in a statement.
The key to all this
news, is really unchanged as you must be able to qualify for the loan
size to purchase the house, which always translates into solid credit
history and a good employment record.
CMHC LINKS:
More LINKS:
