Everything You Need to Know About the CMHC Policy Changes

Home School Home Buying Tips

In Canada, when you put less than a 20% down payment on your home, you require mortgage insurance. This insurance helps new homebuyers gain easier access to the housing market if you don’t have a large down payment saved up. On July 1st, 2020, the Canadian Mortgage and Housing Corporation (CMHC), which is a common provider for mortgage insurance, made eligibility changes that could impact your ability to qualify for a new mortgage. There are alternative mortgage insurance providers to the CMHC that we will share, but first, here’s a brief summary of the recent rule changes:

Changes to the CMHC Policy

The following three policy changes make it more challenging for many homebuyers to secure a mortgage on a new home but they were designed to protect both borrowers and lenders.

1. Lower Debt Ratio

With the new changes, homebuyers with a CMHC insured mortgage are limited to only spending 35% (previously 39%) of their income on housing. In addition to this, the Total Debt Servicing Ratio (TDS) has also changed from 44% to 42%. This means that you can spend 42% of your income on your mortgage payments, including all other debts, such as lines of credit or car loans.

2. Higher Credit Scores

Prior to the change, a ‘fair’ credit score of 600 was all that was needed to qualify for mortgage insurance. Now, at least one of the borrowers must have a ‘good’ credit score of 680.

3. No Borrowed Down Payment

Previously, homebuyers were able to use unsecured loans and credit cards to make their home down payment. Now, the new rule states that “non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes”. This means that the down payment must come from liquid financial assets, savings from other property, or non-repayable financial gifts.

Alternative Insurance Providers

Do these changes to CHMC impact your future homebuying plans? Well, did you know there are other mortgage insurance providers on the market? Providers such as Canada Guaranty and Genworth have a wide range of products for everything and everyone such as newcomers to Canada and those who can only put 5% down. Also, given the competitive landscape, some insurance providers have confirmed they will not be making changes to their approval process. Be sure to discuss all these options with your lending institution or mortgage broker to ensure you are getting the best policy for your situation.

Although CMHC’s recent changes may make it seem like new homeownership is out of reach, interest rates are at an all-time low which actually makes it a great time to purchase a home. Plus, Canadian government programs, such as the First Time Homebuyer Incentive, are also available for extra support. Are you looking for a new place to call home? Check out Morrison’s many move-in ready quick possession and showhomes today!