What the New Mortgage Approval Qualifications Mean for You
by Bryce Hansen
on Friday, July 31st, 2020 at 9:00am.
On July 1st, 2020 The Canadian Housing Mortgage Corp. (CMHC) executed their announcement to change the borrowing rules for homebuyers. If you’re in the market to purchase Comox Valley real estate and especially if you’re a first time home buyer, you’ll want to review these changes that may have impacted you directly. Here’s a closer look at the CMHC changes – and some tips to help you get organized for obtaining a mortgage pre-approval:
Understanding Debt Ratios Gross Debt Servicing Ratio (GDS) and Total Debt Servicing Ratio (TDS) are the two key metrics used to qualify you for a mortgage. GDS is calculated by totaling your estimated housing costs and dividing it by your gross annual income. TDS is calculated by totaling your GDS with other existing debts and dividing it by your annual income. The CMHC has lowered the maximum GDS ratio from 39% to 35% and lowered the maximum TDS from 44% to 42%. As an example; a borrower with a salary of $80,000, previously could have qualified for a $400,000 mortgage, but as of July 1st, that borrower will only qualify for a $350,000 mortgage. This is a substantial difference, reducing buying power. Review your active mortgage pre-approval and any questions you may have with your mortgage professional to identify your own affordability since these changes have come into effect.
Credit Score Consciousness You can order your credit report online from a reputable source such as Equifax or connect with your favourite mortgage professional to establish that the details on your credit report are accurate and up-to-date. One of the new CMHC rules that has come into play is a borrower’s minimum credit score needing to be 680 or higher, an 80 point increase from the previous threshold of 600. This can significantly affect the ability for many first time home buyers to enter the real estate market.
Down Payment Limitations Whether you’re purchasing right here in Courtenay, BC or in another beautiful Canadian city, you’ll need to determine what you can afford for your down payment, while remembering to anticipate closing costs, property transfer tax (unless you are exempt) and moving expenses in your calculations. A down payment of less than 20% will be subject to mortgage default insurance. Keep in mind that with the new CMHC changes, a down payment can no longer be borrowed (such as through a loan or line of credit); it must either be from personal savings or given as a gift.
Some good news to come out of this announcement is that private sector insurers, like Genworth Financial and Canada Guaranty Mortgage Insurance Co., have confirmed they don’t plan on moving forward with the changes that the CMHC is making at this time. It’s important to note that some unique properties may not be eligible for Genworth or Canada Guaranty, leaving you at the mercy of CMHC’s new insurance criteria.
If you’re in the market to purchase a home or invest in real estate and want to lock in a mortgage pre-approval, reach out to your Comox Valley real estate professional by phone 250-334-9900 or email firstname.lastname@example.org and I’ll connect you with my trusted mortgage partners.