CMHC Update - Realtors

 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. Essentially, 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 Client ImpactHousehold Income: $93,300Down payment: $50,000Assuming $1,800 property tax, $300/monthly condo fees and $50 heatingUnder existing rules, qualified purchase price: $500,000Under new rules, qualified purchase price: $447,000This is a 10.3% drop in the qualified purchase price!Questions Still Unanswered1. Will the other two insurers follow suit? (Genworth & Canada Guaranty)2. How long will this be for? Ok, so now what? So, the good news is this is not a change 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 will keep you informed of additional details as they become clear.In the meantime, I would advise that you contact your buyers (especially FTHB) who are looking to purchase with less than 20% down to get a move on finding a property as we may only have until July 1, 2020, to qualify under the existing guidelines, in case other insurers do decide to follow. Thanks for reading, I welcome your feedback and questions and most importantly the opportunity to help your clients. Best regards,

Varshan Thavarajah Mortgage Broker & Partner | MBL # M1600275Banyan Mortgage Group | FSRA #10530647-404-8812Visit our New Website | Read Our Client ReviewsYour Success Lies In Our Roots

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