It’s no surprise that Covid-19 has affected the globe and the mortgage industry is not exempt from this. Job loss, business closure, lack of immigration has all played a role in impacting the housing market.
As a result CMHC has tightened their guidelines effective July 1, 2020. These changes pertain to mortgages that require high ratio insurance (ie: purchase transactions with a down payment of less than 20%).
The recent announcement notes the following changes:
- Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to the standard requirement of 35/42;
- Establish 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.
So what does this mean to you?
The GDS (the percentage of your income that you’re using to pay for your mortgage payment, property taxes and heat) cannot exceed 35% of your gross income, or 42% of your gross income when you factor in minimum payments on all outstanding debts (TDS). This isn’t a large reduction from the current guideline (39/44), but nonetheless, every percentage counts!
If you’re borrowing your down payment from a credit facility (ie: credit card, line of credit or loan) it is no longer considered equity when it comes to determining your insurance.
So now what?
The good news is that Genworth and Canada Guaranty have not changed their underwriting policies. So for those clients that need the extended ratios, have borrowed their down payment or can’t meet the CMHC credit score requirement you still have options.