This month, I’m featuring excerpts of an article written by Juliette Baxter and published in The Financial Post. The article provides valuable insight into the tightening of lending rules that came into effect on July 1 – and what it means for you.
In a (Mortgage Lending) Nut Shell
The Canadian Mortgage and Housing Corporation (CMHC) announced plans in early June to reduce borrowing limits, demand higher credit scores and restrict down payments for anyone who needs default insurance from the agency. That kind of insurance is mandatory for “high-ratio” buyers putting less than 20% down on a home.
It’s important to recognize that, if you’re not a risky borrower in the eyes of the CMHC, these changes may not affect you at all.
Why is this happening?
Evan Siddall, president and CEO of the CMHC, explains the changes are meant to steady the economy in the age of the coronavirus by controlling debt and protecting lenders from people who pose a high risk of defaulting.
While the rules will sting for some people trying to crack their way into the real-estate market, they could be a boon for others. By reducing the number of buyers, the crown corporation hopes to quell demand and balance out home prices.
Although Canada Mortgage and Housing Corporation (CMHC) is implementing these changes, for now, Genworth and Canada Guaranty are not. That means there are other options available!
“COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” Siddall explained in a statement. “These actions will protect homebuyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth.”
Three New Rules
- Homebuyers looking for a high-ratio mortgage won’t be able to submit a down payment with money borrowed from credit cards, unsecured personal loans or lines of credit. Only “traditional sources” of cash, such as savings, equity from the sale of a house or financial support from relatives, will fly.
- The minimum credit score to qualify has changed from 600 to 680. If you don’t know your credit score, you can check it for free online. If it’s too low, you’ll have to take steps to improve it. Read my March blog for ways to improve your credit score.
- Borrowers will be capped at spending 35% of their gross income on housing. That includes the mortgage itself, property taxes and utilities. They will also only be able to borrow up to 42% of their gross income, taking into account all of their other loans and credit. Currently, buyers can spend up to 39% of their gross income and borrow up to 44%. This means potential buyers could see their purchasing power cut by up to 12%.
Mortgage Strategies Tailored to Your Needs!
Whether you’re buying a new home or refinancing your existing mortgage, let’s work together to create a mortgage strategy that’s best for you. Do you have a mortgage question? Who wouldn’t these days! Connect with me. Our conversations are confidential and guaranteed to provide you with the insight you want.
Tracy’s Joyful June
How have you – or will you – celebrate your birthday this year? One thing is for sure, you’ll never forget the celebration of 2020. Here’s how we created special memories in June.
Have a wonderful summer everyone!
