As of July 1st, 2020, the Canadian Housing Mortgage Corp. (CMHC) implemented some new rules that change the borrowing guidelines for securing a mortgage. This has left many people in the Okanagan Valley wondering what it means for them, when obtaining a mortgage pre-approval.
While private sector lenders, like Genworth Financial and Canada Guaranty Mortgage Insurance Co., have confirmed they will not currently follow suit with the changes, you may still be affected by three main components.
1. Your Credit Score
Do you know what your credit score is? This is a very important factor for your mortgage pre-approval. The CMHC has now raised the minimum credit score from 600 to 680, which is quite significant considering the average Canadian only has a credit score of 650, according to the TransUnion national credit bureau. Obtain your credit report from a reputable source such as Equifax and connect with your mortgage agent for ways to increase your score, if necessary.
2. Your Debt Service Ratio
What debt do you currently have? When qualifying for a mortgage, there are two metrics in particular that are used; Gross Debt Servicing Ratio (GDS) and Total Debt Servicing Ratio (TDS). With the changes now implemented by the CMHC, the maximum GDS has been lowered from 39% to 35% and the maximum TDS has been lowered from 44% to 42%. If you’re like the majority of Canadians and don’t know what your GDS and TDS are, here’s how to calculate them:
· GDS = Estimated Housing Costs ÷ Gross Annual Income
· TDS = (GDS + Other Existing Debt) ÷ Annual Income
3. Your Down Payment
Where is the money coming from for your down payment? The new CMHC rules no longer allow for your down payment to be borrowed, which means you cannot use funds from a loan or line of credit. You must either utilize cash, savings, or money given to you as a gift. As well, if your down payment is less than 20% you’ll be subject to mortgage default insurance.
Your Next Steps
These recent CMHC modifications could impact everyone from seasoned Kelowna real estate investors right down to new home buyers looking to get their foot in the Okanagan Valley real estate market. If you want to learn more about how these new rules affect you, I’m happy to connect you with my trusted mortgage partners; give me a call today at 250.718.7851 or reach out by email to Staci@StaciChampagne.com. Let’s work together to get you pre-approved!