Effective July 1st, 2020, there will be some changes coming to the qualification criteria for insured mortgages and it will be harder to qualify for a mortgage again.
On June 4th, 2020 CMHC announced that they would be making some changes to the way applicants qualify for insured mortgages. A mortgage is insured in Canada when the applicant is putting less than 20% down. If you are putting down more than 20% the new rules will not apply to you however do not be surprised if there are changes soon coming to conventional mortgages.
There are three main changes that impact potential homebuyers
- Increase in maximum credit score
- Decrease in debt services ratios
- No borrowed sources of down payment
Increase in minimum credit score
The first change is an increase in the minimum credit score. At least one applicant must have a minimum credit score of 680, this has gone up from a minimum credit score of 600. If there is only one applicant on the mortgage, then that applicant must have a minimum credit score of 680. This is going to potentially kick a lot of people out of the market because those with only excellent credit can buy with anything less than 20% down.
Decrease in debt service ratios
The maximum gross debt service and total debt service has been reduced from 39 and 44 to 35 and 42, respectively. What this means is people will qualify for a lot less than they already do. Some of these changes were first introduced in 2016 when the government introduced the stress test. This new decrease to the debt service ratios will just further limit the maximum affordability
No borrowed sources of down payment
Applicants will no longer be able to use any sort of down payment that is going to put them further into debt. This means for the applicant they can not use unsecured lines of credit, secured lines of credit, or even equity in the applicants existing home. These changes will eliminate the flex down program as well as prevent people from leveraging the equity in their existing homes to buy more property.
We do not know of what other changes are lurking around the corner or if these changes are going to be permanent or temporary. If you have a signed purchase contract prior to July 1st, 2020 you will be eligible to qualify under the existing rules. This does not mean you have to move into your property by July 1st you just have to commit to purchasing a property before that date.
If you have any questions or want to discuss mortgage options, contact The Mortgage Force Team today. Our team works extremely hard to get our clients into their homes and we look forward to working with our clients to help achieve their homeowner dreams.