Looking for a mortgage? Well this is going to happen on July 1 for any lender using CMHC to insure your mortgage. The changes CMHC are making are likely to make it harder for aspiring home buyers (you) with down payments of less than 20% to get a mortgage. There is hope though - Genworth Canada says it will not be following CMHC in tightening mortgage insurance eligibility. They were quoted as saying 'Genworth Canada has no plans to change its underwriting policy, related to debt service ratio limits, minimum credit score and downpayment requirements.'
In order for you, the buyer, to be well informed here are the new rules that CMHC is going forward with effective July 1. Here we go:
The main changes have to do with debt service ratios and credit score requirements:
Gross debt service (GDS) ratios must be under 35, down from 39*
Total debt service (TDS) ratios must be under 42, down from 44*
Your credit score must be at least 680, up from 620**
Plus you are no longer able to borrow money for a mortgage downpayment (example - Line of Credit)
*Debt service ratios (GDS and TDS) are used by lenders to determine how much you can afford to borrow. The calculation compares your income to the amount you will be paying to service your current debt, along with some other living expenses. The higher the number, the more incomde yoou need to pay your debts. To decrease your debt service ratios you must either increase your income or pay off your existing debts.
**Credit score is a requirement that ensure you can qualify for an insured mortgage. If you do not have a high enough credit score that may mean you are unable to take out an insured mortgage.
What does this mean for you as far as dollars and cents are concerned:
Previously, when you were going for a mortgage with less than 20% down with a GDS of 39 and the Stress Test at 4.94% and your annual income is $100,000 (with a 10% down payment) the home value you would qualify for was $524,980.* Using a mortgage calculator at the time this blog was written
Now - you would qualify for a home value of $462,860.
I could go in to the reasons why the Government-based mortgage insitution decided to do this - the biggest being Covid-19.
I also mentioned above that Genworth Canada is NOT following CMHC. Nor are private insurance providers because they are under no obligation to hold you to the requirements that CMHC has.
Bottom Line - you a) understand the impact on your personal situation b) contact me for the names of mortgage brokers that may be of assistance to you. They are independent experts who can assess your situation and give you up to date advice.
I'd like to thank Ratehub for some of the information they provided to me for this blog.