When buying a home with less than 20% down, you are required to purchase default insurance on your mortgage loan. This stipulation is not new, but recent policy changes to the insured mortgage space by The Canada Mortgage and Housing Corporation (CMHC) are.
These are significant changes made as result of the potential effects of the COVID-19 pandemic on the Canadian economy. CMHC is a federal Crown Corporation that provides default insurance. It’s mandate is to help Canadian’s access affordable housing options. To read the full article published by CMHC on June 4, 2020, please click here.
What are these changes and what does this mean for you?
- An increase in the mandatory credit score for at least one applicant. The mininimum score was 600 previously, but it has now been increased to a firm – no exception – score of at least 680. This is important as 80 points is a considerable jump when the score can only range from 300-900!
- The source of down payment options have removed one popular option – an applicant can no longer use borrowed funds towards their down-payment. This means an applicant cannot use funds from a credit card, line of credit or a loan with repayment terms of any kind.
- Finally, the gross debt service ratio (how much debt one can have in relation to income) has been DECREASED from prior potential of 39/44 to a more conservative 35/42. This simply means an applicant has lower borrowing power in relation to existing debt, size of mortgage request to the allowed income.
Overall, these new changes represent an approximate 9% – 13% reduction in what you may qualify for – primarily impacting first time homebuyers. All the changes noted above only speak to purchases or renewals. Refinancing is not permitted in the insured mortgage space.
Whether you have plans to purchase, renew or refinance, it is a good idea to review your options today!