Canadian Mortgage and Housing Corporation (CMHC) Canada's largest mortgage insurer is changing how buyers purchase a home. The new rule changes are making it tougher for people trying to qualify for a mortgage with less than 20% down effective July 1st. Good news there are two other mortgage insurers that are NOT following the same guidelines.
There may be some ways around it, and additional questions to ask your mortgage specialist if you are looking at buying with less than 20% down.
The changes they made are in response of Covid-19 and the economical conditions. See the CMHC media release here.
Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to our standard requirements of 35/42;
Establish minimum credit score of 680 for at least one borrower; and
Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes.
The first change is the main change that will affect the vast majority of people and what they can qualify for. It reduced the total amount of debt one can allocate to the housing by 2%, the old TDS ratio was 44%. The total debt ratio will now only allow you to allocate 42% of your income to housing costs.
The second change requires one borrower to be on the loan with a credit score of 680 or above. This change was from 600 credit score previously.
The third change limits what can be used for equity on the downpayment. No longer are you able to use line of credit or credit card as part of the downpayment and use it for equity.
The last 2 changes are more likely will not affect as many people as the first change. However, the good news is that there are ways around it.
1. Have an Accepted offer before July 1st
2. Get insured by two mortgage insurers that are not following the new guidelines.
3. Restructure the loan so one person meets the criteria
If you were thinking of buying this summer or fall, talk to your mortgage specialist about the changes as it may impact your plans.
Have a great week. Reach out if you have any questions or if there is anything I can do.