Effective July 1, 2020, Canada Mortgage and Housing Corporation (CMHC) is changing its underwriting guidelines for insured mortgages. The changes will apply for new applications for homeowner transactional and portfolio mortgage insurance:
- Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to its standard requirements of 35/42 down from 39/44, which means you would qualify for approximately 11% less of a mortgage than you would today.
- Establish a minimum credit score of 680 for at least one borrower.
- Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes. In other words, the down payment can no longer be borrowed.
CMHC has also suspended refinancing for multi-unit mortgage insurance except when the funds are used for repairs or reinvestment in housing.
In my opinion, CMHC’s new underwriting policies won’t have near as much impact on the mortgage as the B20 stress test of 2018. It will affect approximately 5% of the mortgage buyers pool who take out high-ratio mortgages, in other words, those who put 5%, 10% or 15% down. Unlike the B20 stress test, these new guidelines won’t affect those who are putting down 20% or more of a down payment, for now.
The way that mortgages are underwritten in Canada is already extremely stringent. I personally don’t think CMHC should be tightening mortgage credit further, especially in our current climate.
If you are currently in the market and had anticipated putting less than 20% down before this announcement and you wish to get pre-qualified for a mortgage, there is still time to qualify based on CMHC’s current guidelines. Feel free to reach out to me and I’ll be glad to help you get pre-qualified before July 1. We also have access to two other non-government mortgage insurers who have not announced any changes to their qualification criteria at this time.
