CMHC update - New Clients

 CMHC DELIVERS A HUGE BLOW TO FIRST-TIME HOME BUYERS 

Good Morning , Yesterday afternoon, 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 down payment allowed (line of credits and personal loans to fund downpayment). The good news, gifted funds from immediate family is still considered as an acceptable down payment source.

  Real-life ImpactHousehold Income: $93,300Down payment: $50,000Assuming $1,800 property tax, $300/monthly condo fees and $50 heatingUnder existing rules, approved purchase price: $500,000Under new rules, approved purchase price: $447,000This 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. Early indications seem to suggest that the private insurers will not follow with these changes, but each is currently determining their specific response.More details are expected early next week, and I anticipate there may be some changes but definitely not as severe as CMHC.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 to see how this new change will apply to your buying power, in case other insurers do decide to follow. Thanks for reading, please reach out directly if you have any questions. Best regards,

Varshan Thavarajah Mortgage Broker & Partner | MBL # M1600275Banyan Mortgage Group | FSRA #10530647-404-8812Visit our New Website | Read Our Client Reviews

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