We've got breaking news! CMHC has confirmed and announced changes to their underwriting criteria. The decision was made to reduce risk in the market due to the affect of COVID-19 on the Canadian economy (ie: job loss, business closures, and drop in immigration). The insurer predicts a decrease of 9% to 12% in home prices in the coming 12 months.
Effective July 1st, 2020, the following changes to CMHC underwriting will apply for new applications under insured mortgages.
CMHC Changes Underwriting Criteria
Maximum Gross Debt Service (GDS) Ratio drops from 39 to 35
Maximum Total Debt Service (TDS) Ratio drops from 44 to 42
At least one borrower on the application must have established minimum credit score of 680
Non-traditional sources of down payment (ie: line of credit, credit card, borrowed from non-immediate family member) is no longer acceptable
*The information above is taken from CMHC
How will this Affect Borrowers Applying for an Insured Mortgage?
*Insured Mortgage: <20% down payment
Qualifying at current requirement: GDS/TDS of 39/44
Income: $80,000/year
Purchase Price: $400,000
Down Payment: 5% ($20,000)
Maximum Mortgage: $395,200
*Mortgage includes CMHC insurance
Qualifying at standard requirement: GDS/TDS of 35/42
Income: $80,000/year
Purchase Price: $360,000
Down Payment: 5.5% ($20,000)
Maximum Mortgage: $353,600
*Mortgage includes CMHC insurance
For borrowers applying for an insured mortgage, the changes in underwriting will decrease borrowing power by roughly 10%. Will Genworth and Canada Guaranty follow suit? This has not been confirmed, but the insurers are likely to follow suit. If you have any questions or concerns about the changes, please don't hesitate to reach out to me at jessica.kuan@cleartrust.ca.
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