CMHC Tightens Up Borrower Requirements
CMHC (Canada Mortgage and Housing Corporation) has just announced changes to their underwriting, effective July 1. They are one of three default mortgage insurance providers in Canada. Every mortgage that has less than 20% down payment needs to be default insured. We are still waiting to see if the other two insurers, Genworth and Canada Guaranty, follow along with these changes. If so, it will make borrowing for those with less than 20% down more difficult. CMHC announced the following changes:
- Maximum affordability ratios dropped - Maximum TDS (Total Debt Service - the share of income that goes toward paying all housing costs, including mortgage, taxes, condo fee and heat) will be dropped from 39% to 35%. The maximum GDS (Gross Debt Services – the share of income that goes towards paying all housing costs as well as any other debt commitments) will be dropped from 44% to 42%.
- Tougher credit qualification – at least one borrower must have a beacon score above 680 (currently 600).
- No borrowed down payments (ex.unsecured line of credit)
You can check out their media release here:
How Could This Impact You?
If all the insurers move ahead with this, here is how it will impact you:
- Decreases your buying power - for a strong credit buyer without debts it will drop your purchasing power by approximately 10%.
- Must have strong credit to purchase
- Revisit your pre-approval once these rules come into effect – your maximum mortgage may change
Why Is CMHC Doing This?
CMHC has recently stated they are concerned about house values dropping and how that would impact new home buyers. They are concerned they could become underwater, or owe more on their mortgage than their home is worth. To counteract that they are reducing the size of mortgage new buyers can take on and lending only to borrowers who are stronger from a credit perspective.
To track any updates related to this, please connect with me on my Facebook page. I will post what the other insurers choose to do in response to this announcement: