The Canada Mortgage and Housing Corporation (CMHC) is tightening its rules to qualify for an insured mortgage. CMHC has announced that effective July 1, 2020, new applications for homeowner transactional and portfolio mortgage insurance would be subject to the following changes:
- Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to 35% and 42%, respectively;
- A minimum credit score of 680 for at least one borrower (up from the previous minimum of 600); and
- Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes.
CMHC is also suspending refinancing for multi-unit mortgage insurance, unless the money is being used for repairs or reinvestment in housing.
CREA has advised that while it’s unclear how many potential buyers will be impacted by these changes, they will affect first-time home buyers in particular, who will now be sidelined as they wait to save more money for a down payment in order to comply with new the requirements, or be forced to look far beyond the neighbourhoods in which they had planned to establish their lives.
The changes announced are specific to CMHC, and the private insurers are not compelled to follow CMHC’s lead. It is expected that the private insurers will be reviewing CMHC’s announcement and will then publicize their response.
CMHC stopped short of raising the minimum down payment from 5 per cent to 10 per cent after saying it was appropriate two weeks ago during testimony to the House of Commons finance committee.
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