The Canada Mortgage and Housing Corporation (CMHC) announced mortgage default insurance rule changes this week that will impact home buyers using their service in three significant ways.
This two-minute video provides an overview of how the new rules, effective July 1, 2020, apply.
When you purchase a primary residence in Canada with a down payment of less than 20%, you're required to purchase mortgage default insurance through one of three Canadian providers that offer service in Canada, CMHC being the most prominent of those.
This week, CMHC announced some changes that are coming July 1 to their program, and I had an opportunity to talk with Tyler Hildebrand at oneSt. Mortgage yesterday, and he's brought me up to speed on those changes.
The most significant of the three is the change to the debt-service ratio. That is the percentage of your income that the lender will allow you to spend on mortgage service, property taxes, and heating. Prior to July 1, CMHC's limit is 39% of your gross income. That's gonna drop to 32%. That's gonna affect your buying power by roughly 10%. So a $400,000 house pre-July 1, 360 afterward.
The second change that's also fairly significant is at least one buyer on the application, the mortgage application has to have a credit score of 680 or higher. A credit score is a number that a credit bureau puts together based on your past performance in repaying your debt, and perhaps the amount of debt that you're carrying now. You're definitely gonna wanna revisit your mortgage broker and find out if your preapproval is still good because this is gonna affect a lot of people.
Finally, they're eliminating the ability to borrow any portion of your down payment. You previously could put some portion of your down payment on a secondary line of credit, and you can no longer do that with a CMHC-approved loan after July 1.
There are still two other mortgage insurance providers in Canada; no details on whether or not they'll follow suit. But as for CMHC, effective July 1, those are the new rules.
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