On July 1, 2020 it will be harder for Canadians to qualify for an insured home purchase mortgage due to changes announced June 4th, 2020 by the Canada Mortgage and Housing Corporation (CMHC). If you’re looking to purchase a home with less than 20% down the following underwriting rules have changed:
- The minimum credit score will rise to 680 from the current 600
- All non-traditional sources of down payment that increase indebtedness (leveraged) will no longer be treated as equity for insurance purposes
- The maximum gross debt service (GDS) ratio will drop from 39 to 35
- The maximum total debt service (TDS) ratio will drop from 44 to 42
These rule changes come as a result of bleak predictions resulting from the COVID-19 pandemic, that house prices will drop between 9 to 18 per cent within the next 12 months. Therefore, to help reduce the risk and protect future home buyers, CMHC has implemented these new changes to it’s underwriting policies for insured mortgages.
Having a minimum credit score of 680 has been a requirement for many lenders thus far, but potential home buyers will feel a significant decrease in borrowing capacity due to the reduction in debt servicing ratios. For example, a family with $100,000 household income could qualify for a $475,000 mortgage under the current criteria. To put things into perspective, the same family would only qualify for a mortgage of approx. $410,000 on July 1.
Fortunately, the two other private mortgage insurers, Genworth MI Canada Inc. and Canada Guaranty Mortgage Insurance Co., are still qualifying home buyers with less than a 20% down payment using the same ratios and qualification guidelines as before. There is no mention that they will be following in suit of CMHC. Speak with one of our experienced mortgage strategists at Easy Mortgage today by calling us at (647) 660-1129 or contact us via email at firstname.lastname@example.org and we will work hard to make sure you can purchase your dream home.
- CMHC News Bulletin Link: https://www.cmhc-schl.gc.ca/en/media-newsroom/news-releases/2020/cmhc-reviews-underwriting-criteria