CMHC Updates Explained
The Canada Mortgage and Housing Corp. (CMHC) says it will no longer allow homebuyers to use borrowed funds for their down payment, will require a higher credit score from at least one borrower, and will lower the threshold for how much debt applicants can carry compared to their income.
Does this mean I won't be approved for a mortgage and won't be able to buy a new home?
Our job as real estate agents is to assist you with every step of the home purchasing experience, this includes breaking down details that affect home purchasing and the local real estate market.
We are Niagara Region's #1 Real Estate Team, we are not mortgage brokers. When it comes to understanding mortgage rules, changes, and important announcements we call in the experts to advise us. That's why we reached out to Scott Wark, Home Financing Advisor with Scotiabank. Scott is a leading expert in Home Financing with over 15 years of banking experience, Scott specializes in helping first-time homebuyers obtain financing for their home purchase and just the man to help us and our clients navigate the recent CHMC changes.
It is with Scott's expert advice, Davids & DeLaat are here to tell you that it's actually business as usual when it comes to mortgages despite the recent changes.
Let's break down our explanation into a few steps.
Step 1: Understanding the CMHC
The Canadian Mortgage and Housing Corporation (CMHC) is the largest issuer of mortgage default insurance, which protects lenders if a borrower cannot make their payments. Mortgage default insurance (often called CMHC insurance) is required on any mortgages with a down payment of less than 20%.
Step 2: Understanding the changes that the CMHC has announced
The CMHC feels strongly that "the COVID-19 pandemic is affecting all sectors of Canada’s economy, including housing. Job losses, business closures, and a drop in immigration are adversely impacting Canada’s housing markets, and CMHC foresees a 9% to 18% decrease in house prices over the next 12 months. In order to protect future home buyers and reduce risk, CMHC is changing its underwriting policies for insured mortgages.
Effective July 1, the following changes will apply for new applications for homeowner transactional and portfolio mortgage insurance:
Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to our standard requirements of 35/42;
Establish a minimum credit score of 680 for at least one borrower; and
Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes."*
Step 3: How does this affect potential homebuyers?
The media is currently promoting a stance that the changes, which come into effect July 1, will reduce the purchasing power of homebuyers who opt for CMHC insurance and likely leave insured mortgage applicants in pricey markets with fewer options.
This is leading a lot of potential home buyers to think that they will not be able to move forward with their home search.
Scott Wark has been able to explain to us that despite the direction the CMHC is taking, homebuyers should remain positive about their home search and plan for "business as usual" as there are alternative lenders that have no plan to change their vetting processes. "One example of this is Genworth MI Canada Inc., Genworth confirms that it has no plans to change its underwriting policy related to debt service ratio limits, minimum credit score, and down payment requirements. One of the Company's competitors announced changes to their internal underwriting guidelines with respect to the aforementioned underwriting criteria on June 4, 2020.
"Genworth Canada believes that its risk management framework, its dynamic underwriting policies and processes and its ongoing monitoring of conditions and market developments allow it to prudently adjudicate and manage its mortgage insurance exposure, including its exposure to this segment of borrowers with lower credit scores or higher debt service ratios," said Stuart Levings, President and CEO."**
In short, there are options for homebuyers to turn to despite the CMHC's announcement. Homebuyers can feel comfortable putting their foot on the gas and continuing or starting their home search. That's where we come in. Whether it’s your first time buying a home or you’ve done it before, it’s crucial to have a team of experienced professionals to guide you along the way. It’s our job to take care of you during every step of the process of purchasing a home. From understanding CMHC announcements to finding your dream home. Our job is to take care of you throughout every step of the process accurately answer your questions about the current market and guide you to making the best choice for your needs and budget.
Thinking its time to move? We can help with that.
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