Obtaining an insured mortgage is about to become more challenging on July 1st, particularly for first time home buyers.
Canada Mortgage and Housing Corporation (CMHC), Canada’s national mortgage insurance provider, unveiled stricter underwriting policies yesterday for insured mortgages (less than 20% down payment)
» Limiting Gross Debt Service (GDS) ratios to 35% (from 39%)
» Limiting Total Debt Service (TDS) ratios to 42% (from 44%)
» Raising the minimum credit score to 680 for at least one borrower
» Banning non-traditional sources of down payment that “increase indebtedness”
What do the changes mean for buyers?
CMHC’s changes will effectively reduce homebuyers’ purchasing power by up to 11%. Someone earning $60,000 with no other debt and 5% down could afford approximately 10.9% less home under CMHC’s new rules. That’s like jacking up the minimum stress test rate from 4.94% (where it lies today) to 6.30%!
Roughly 18% of CMHC’s high loan-to-value originations had a Gross Debt Ratio of more than 35%, according to a report from RBC Economics. And about 5% of CMHC’s originations had credit scores of less than 680, according to data from Mortgage Professionals Canada.
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One of the biggest questions since release of the new rules yesterday has been whether CMHC’s competitors, Canada Guaranty and Genworth Canada, would have to adopt the stricter underwriting measures as well. According to the RBC Economics report, they won’t, at least not for now.
“Genworth Canada and Canada Guaranty confirmed to that they have not been told to adopt any or all of the same underwriting changes,” the report notes. “…although we would not be surprised if they were to eventually adopt some (e.g., down payment sources, credit score) or even all of the changes.”
Have questions, send me an email!
Tatum Neufeld, BComm
Mortgage Broker • Mortgage Tailors