Getting you the mortgage you deserve
CMHC Further Tightens Mortgage Guidelines
June 5, 2020 | Posted by: Doug Neufeld
Breaking News – CMHC Announces Changes – July 1st
You can read the official CMHC announcement here
But here’s a quick summary of the changes effective July 1st:
- Minimum Credit Score rises from 600 to 680
- Maximum GDS drops to 35% (formerly 39%)
- Maximum TDS drops to 42% (formerly 44%)
- Borrowed Down payments are banned
There are 3 insurers in Canada. So far CMHC is the only one that has announced any changes. There is a chance that the other 2 mortgage insurers (Genworth & Canada Guaranty), won’t follow at all, or they’ll only follow some of the rules. In fact, it might be a good competitive advantage for them not to follow all of the changes (unless mandated by the federal government). We likely won’t hear from the other 2 insurers until early next week, but let’s remain cautiously optimistic.
What does each change mean?
No More Borrowed Down payment – This isn’t really a big deal at all, as virtually zero lenders participated in this program, and the way this program worked it was pretty much an un-used program anyways. In fact, as you read this, you likely didn’t even know this program was still an option. The net effect of this is almost zero.
Credit Score Requirement – CMHC now requires a minimum 680 credit score (for 1 borrower)
Previously it was 600. This is a significant change as education and consumer awareness around credit scores need to increase. People need to be taught about their credit scores in school etc. CMHC says that less than 6% of their mortgage applications this year had scores below 680, so it doesn’t really affect a lot of CMHC buyers anyways…but it will affect some.
35/42 GDS/TDS – This is without a doubt the biggest announced change, and it could potentially have the largest effect on the lower end of the real estate market. It’s hard to explain this to the average purchaser but it will affect an average borrower anywhere from 12% or more on their borrowing power. So, if you qualified to borrow $500,000 before, your maximum mortgage is now reduced to about $440,000. Ouch.
What are they attempting to accomplish?
The bottom line is that this only affects people buying homes after July 1st. And it will mostly affect the purchasing power of the youngest, the lowest income and lowest down payment buyers.
It won’t affect any of the following types of mortgage borrowers:
- Any buyer with over 20% down payment
- Any buyer of a home valued more than $1 Million
- Rental property purchasers
- Anyone refinancing their mortgage
- Anyone renewing their mortgage.
- And remember, as of right now, these rule changes don’t apply to the other 2 mortgage insurers in Canada (rumours are already spinning saying the other insurers won’t match entirely).
So, it only affects a very small portion of home buyers in the lower mainland. The problem is that it’s the first-time buyers that are hurt the most. Those same first-time buyers that were hurt the most from the mortgage stress test. It hardly seems like the fairest thing to do in the middle of a pandemic.
If you’re preapproved, and you’re intending to buy a home with less than 20% down payment, you definitely need to speak with your mortgage broker about how this might affect you. It might put some urgency to buy a home before July 1st.