As you may have heard, CMHC (Canadian Mortgage & Housing Corporation) has announced that they will be changing the eligibility rules for mortgage insurance as of July 1st. Before we get into what this means, please keep in mind that this is an independent decision by the CMHC and not directed by the Canadian Finance Minister. The CMHC is one of three mortgage insurers available in Canada, the other two being Genworth and Canada Guaranty, who continue to increase market share and at the time of this post have no intention of updating their policies. Here's what's changing:
Less debt as a percentage of gross income
Right now the rules state that no more than 39% of your gross monthly income can go towards your mortgage payment, property taxes, $100 for heat, and condo fees (if any). That is your GDS or Gross debt service ratio. CMHC will be reducing it to 35%.
New minimum credit score established
The new rules require a minimum credit score of 680, up from 600, to qualify
No more borrowed down payments
Borrowers must provide the down payment 'from their own resources', meaning unsecured loans and lines of credit will no longer qualify. Funds for a downpayment can come from savings; equity from the sale of a property; a non-repayable financial gift from a relative; funds borrowed from other, liquid financial assets or against other real property; or a government grant.
For some would-be buyers, this will inevitably affect your buying power, with some analysts projecting this could eliminate 1 out of every 5 potential buyers. If you have more in-depth questions, we would be happy to connect you with one of our preferred mortgage brokers
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