The Canada Mortgage and Housing Corporation (CMHC) has tightened up their rules around the mortgages they’ll insure – cutting the buying power of first-time buyers by up to 12%. They’re saying that since we're in a time of heightened risk, they need to manage that risk and protect taxpayers with tougher rules.
That's the bad news, and it has to be freaking out a lot of first-time buyers. But luckily, there’s good news, too, announced a few days after the CMHC publicized their plans. Private insurer Genworth is NOT making the same changes and has “no plans to change its underwriting policy related to debt service ratio limits, minimum credit score or down payment requirements.” Neither is Canada Guaranty, another private insurer, who has made this statement:
“Canada Guaranty utilizes a dynamic underwriting process where our underwriting policies are consistently updated to reflect evolving economic environments and emerging mortgage default patterns. Given implementation of the qualifying stress test and historic default patterns, Canada Guaranty does not anticipate borrower debt service ratios at time of origination to be a significant predictor of mortgage defaults.”
And that means insured buyers can maintain their current buying power – which is great if you want to take advantage of the historically low mortgage rates we’ve got going on right now. So even if you’ve got a lower down payment, a higher debt load or a less than stellar credit score, you're still in the game.
CMHC rules explained
To give you some background, as of July 1, 2020, these are the four main changes brought in by CMHC:
Your Gross Debt Ratio (which is the percentage of your gross income that housing costs represent) has dropped from 39% to 35%.
Your Total Debt Service Ratio – the percentage of your total financial obligations, including housing but also things like car payments, credit card debt, condo fees, etc. – has gone from 44% to 42%.
The credit score of at least one borrower has to be 680 or higher: that's up 80 points from before.
Your down payment can no longer be borrowed – no unsecured loans, lines of credit or credit cards.
Got questions? Browse our in-depth First-time Buyers hub or contact Sean, who's always happy to answer your questions.
Need a bit of background?
If you've got less than 20% down (like most first-time buyers, especially in the GTA), your mortgage is considered higher risk and has to be insured to protect banks in case you default. Those insurers include the CMHC (a government entity) as well as Genworth, a private insurer.
About Sean Miller
Sean is one of the top realtors at property.ca / condos.ca. Sean has the drive and expertise to guide you through one of the most important financial decisions you’ll ever make. Whether you're a first-time buyer, a seasoned seller, are new to the Toronto market or are looking for a great investment, he makes the experience as stress-free as possible, quickly assessing your needs and offering a full range of options that fit with your lifestyle and budget. Navigating the GTA market is his specialty, and stellar customer service and deep market expertise are his calling cards. He is always ready to go the distance to help clients make the right choice, at the right time and the right price. Contact Sean today.