CMHC Insurance changes for Calgary Real Estate
CMHC Rule Changes Coming for July 2020
Here we go again, more changes to lending, this time the changes will affect high ratio mortgage insurance with CMHC. High ratio mortgages are anyone who is putting down less than 20% on their purchase price. GE (Genworth )and Canada Guaranty are both private mortgage insurance companies and will not be implementing the same changes at the time of this article, but we expect it would be likely to see them follow suit with the changes in the future as it will decrease their risk and exposure.
WHAT will change?
The new rules will lower the debt allowed for a homeowner to take on. So essentially you will qualify for a little less home than you would before the July 1 changes. You will also need better credit than previously required. Lastly, you will have to save that downpayment, you will no longer be permitted to borrow your downpayment.
Buyers previously could borrow up to 44% of their gross income and 39% could go to housing ( mortgage, taxes and heat) Under the new rules buyers will only be able to borrow 35% for housing and 42% for total debt load.
Buyers will have to have a minimum credit score of 680 previously the minimum credit score was 600 - this is a significant credit increase requirement for new mortgages. All the more reason to keep your credit in tip-top shape.
Previously a homebuyer could use a line of credit for their downpayment as long as they could service the debt ratios. That option will no longer be available under the new rules. Homebuyers will now have to provide their downpayment from their own resources, from savings, a sale of another home or a non-repayable gift from a relative.
WHY the change?
CMHC is predicting that home prices will fall in 2020 largely impacted by Covid-19 and with job loss combined with high mortgage debt being the largest factor. Canadians are among the world leaders in household debt and the government feels if they do not intervene it would cause concern for Canada's longer-term financial stability.
WHAT can I EXPECT?
The average Canadian previously qualifying for a $500,000 purchase price could expect that number to decrease by about $25,000 under the new rules. So instead of qualifying for a $500,000 purchase price, you might qualify for $475,000.
Before the pandemic of Covid-19, there was talk to reduce the stress test for lending - unfortunately, there will be no changes to the mortgage stress test this year perhaps not any time soon.
Want to know how much home you qualify for? Visit Conexia Mortgage our mortgage broker partner for the best mortgage rates and to apply for your mortgage online.