On June 4th, 2020, the Canada Mortgage and Housing Corporation (CMHC) changed their borrowing guidelines for new home buyers. At a glance, the CMHC has “reduced borrowing limit, demanded higher credit scores and restricted down payments.”
WHAT ARE THE NEW GUIDELINES?
1. When applying for a mortgage, one buyers’ credit score2 to be at or above 680
2. No longer accepting non-traditional sources of down payment- usage of credit cards, lines of credit or personal loans are no longer allowed3.
3. Stricter guidelines for spending - a cap at 35% of the buyer’s total gross income towards housing fees such as mortgage amount,property taxes, utilities, etc. will be in effect.4
HOW WILL THESE GUIDELINES AFFECT YOU?
- If your credit score is below 680, you will have to increase your credit rating
- Use savings, cash, or equity from your current home sale to provide a down payment
- Be aware your qualifying amount will decrease, expect a cutup to 11% lower than what you could have previously qualified for.5
Most of these changes are to protect the Canadian economy and housing market. They also work to help stabilize the market due to the COVID-19 pandemic.6 These guidelines are also more so in effect for buyers contributing less than 20% for their down payment. On the other hand, there are other mortgage insurance lenders than the CMHC. Genworth and Canada Guaranty are not enforcing the same guidelines as CMHC, be sure to shop around when looking for mortgage insurance.
LOOKING TO BUY A HOUSE?
Now is still a great time to get into the housing market! With interest rates still being at a record low, investing in real estate is an excellent choice. If you are looking for a home or have put in an offer - confirm your deal now to get in with June 2020 rules. There is still time!
Whenever you are ready, Daytona Homes will help you in finding and moving into the home you want, when you want. We have move-in ready homes available, and can connect you with the best mortgage brokers in the city!
Footnote:
1. Baxtor, Juliette. (2020): “MoneyWise: How to get around Canada’s harsh newmortgage rules.” https://business.financialpost.com/moneywise/how-to-get-around-canadas-harsh-new-mortgage-rules#:~:text=The%20Canadian%20Mortgage%20and%20Housing,20%25%20down%20on%20a%20home.
2. Ownest.(2020): “New CMHC Criteria.” https://pricing.ownestfinancial.com/important-changes-to-cmhc-underwriting-criteria/?utm_medium=email&_hsmi=89805777&_hsenc=p2ANqtz-9Nat9ZIxVbuY9d6SK3mU5cWzleNNn8Re84VJ0cokb9hocRqCCZYvwE3_tjDiZFf8eEjuMYj-YwOGGjr_TVUjFFdjHnaA&utm_content=89805777&utm_source=hs_email
3. CHBA.(2020). “CMHC takes more steps to restrict Canadians’ access to homeownership” https://www.chba.ca/CHBADocs/CHBA/HousingCanada/Industry-Issues/2020-06-05-Key-Messages-CHMC-Mortgage-Rule-Changes.pdf?utm_source=Informz&utm_medium=Email&utm_campaign=Bulk%20Email
4. Baxtor, Juliette. (2020): “MoneyWise: How to get around Canada’s harsh newmortgage rules.”
5. Alini, Erica. (2020): “Global News:What do the new CMHC rules mean for homebuyers.” https://globalnews.ca/news/7030025/new-cmhcrules/#:~:text=The%20Canada%20Mortgage%20and%20Housing%20Corp.,carry%20compared%20to%20their%20income.
6. Ownest. (2020): “New CMHC Criteria.”