CMHC Changes Guidelines, Hurting First Time Home Buyers

On June 4th 2020, CMHC announced changes to its mortgage insurance underwriting and acceptance criteria.

Effective July 1, the following changes will apply to all new applications for homeowners looking to purchase with less than 20% down.

CMHC Changes:

  • The maximum gross debt service (GDS) ratio drops from 39 to 35
  • The maximum total debt service (TDS) ratio drops from 44 to 42
  • The minimum credit score rises from 600 to 680 for at least one borrower
  • Banning non-traditional sources of downpayment that increase indebtedness. (No more borrowed down payments allowed)

You can read the full release here.

The Impact?

  • Homebuyers purchasing power will drop by approx. 11% (see below for sample scenario)
  • Credit is more important than ever as the min. credit score required is 680 for at least one applicant on the mortgage
  • No more borrowed unsecured down payment allowed  The good news, gifted funds from immediate family & HELOCs are still considered as an acceptable down payment source.

Real-life Impact
Household Income: $93,300
Down payment: $50,000
Assuming $1,800 property tax, $300/monthly condo fees and $50 heating
Under existing rules, approved purchase price: $500,000
Under new rules, approved purchase price: $447,000

This is an effective drop in the approved purchase price of 10.3%!

Ok, so now what?

So, the good news is this is not a directive from the Ministry of Finance and not a required industry-wide mandate. As such, the remaining two private mortgage insurers, Genworth’s and Canada Guaranty’s criteria are not directly affected. Both Genworth & Canada Guaranty have announced they will not be implementing any of the changes announced by CMHC.

See their official statement below:

Genworth Announcement

Canada Guaranty Announcement

I would advise that if you are an active buyer, looking to purchase with less than 20% down then I'd highly recommend you get in contact with us to get pre-approved in this changing market.

Thanks for reading, please reach out directly if you have any questions.

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