Last week, the Canadian Mortgage and Housing Corporation (CMHC) announced it would be changing its underwriting criteria for insured mortgages. Insured mortgages are mortgages made with down payments of less than 20% and require default insurance from CMHC. Given the economic impact of COVID-19, they expect that housing prices will drop over the next year. To promote stability in the Canadian housing market, CMHC is raising lending standards to protect buyers against risk and ensure they don’t take on too much household debt. The good news: depending on the lender you choose, this may not affect you.
What’s exactly changing?
As of July 1, 2020, CMHC will apply the following changes to all new insured mortgage applications:
Minimum credit score will increase from 600 to 680 for at least one borrower
Gross Debt-Service (GDS) ratio will decrease from 39% to 35%
Total Debt-Service (TDS) ratio will decrease from 44% to 42%
Buyers can no longer borrow money for a down payment
Refinancing for multi-unit mortgage insurance will be suspended, unless funds are being used for repairs or reinvestment in the property
What does this mean for home buyers?
These new changes are expected to cut the purchasing power of Canadian buyers, especially first-time buyers, because housing affordability will decrease. Given that first-timers are more likely to make down payments of less than 20%, these new rules will make it a little more difficult for them to enter the market. It’s possible that certain lenders will follow this policy, while others won’t which makes it that much more important to shop around.
The good news: This may not affect you!
These new rules only apply to lenders who use CMHC as their only insurer, which means not everyone is following through with these stricter changes. Genworth MI Canada Inc., a CMHC competitor, has no plans to implement these tighter mortgage requirements. In a recent announcement, they made it clear there will be no changes to their underwriting policies related to minimum credit scores, household debt-service ratios and down payment requirements. This is great news for first-time home buyers. So, while some lenders might implement these new policies, there are others out there that may not, making it that much more important to shop around when applying for a mortgage.
At Homewise, we work with over 30 banks and lenders (many of which that don't have to use CMHC) to find you the best mortgage, even when market conditions are uncertain. If you’re wondering how these new mortgage rules may impact you, apply today and one of our Mortgage Advisors will assist you to learn more and find out your best options as well as affordability.
