In the last month, CMHC released significant changes to their underwriting policies, that is, how they determine if someone can get a mortgage when they purchase with less than a 20% down payment. As of July 1 st , CMHC has implemented these changes and the industry will be watching to see how they play out.
What is CMHC, anyways?
Need a quick refresher on what CMHC is and why their rules may be important? Here you go; CMHC stands for the ‘Canada Mortgage and Housing Corporation’. Although they do many things, one of their main roles is acting as one of Canada’s 3 mortgage insurance agencies. Along with Genworth and Canada Guaranty, CMHC provides the mortgage insurance that homebuyers must pay when they are putting down less than a 20% down payment.
What is all the fuss about?
When CMHC announced that they would be making significant changes to their underwriting policies (the rules that qualify or disqualify clients from getting required mortgage insurance), the mortgage industry started buzzing. With higher qualifying requirements in place, less people will be able to receive the mortgage insurance that they would need to purchase a home. Attention was immediately directed to the other insurers to see if they would follow suit. Many people also wondered why these changes were made and if CMHC would stick to them, even with significant public pressure.
CMHC Changes (Effective July 1 st )
To recap, CMHC’s changes are listed as follows:
- GDS (Gross Debt Service) Ratios have decreased by 4%, from 39%-35%.
- TDS (Total Debt Service) Ratios have decreased by 2%, from 44%-42%.
- The minimum qualifying credit score has increased from 600 to 680 for at least one of the borrowers listed on the mortgage.
- Some down payment sources (ie. Gifted down payments) will be limited or banned.
What we know about the CMHC Changes
Now that the dust has settled, we have some answers that can prepare us to see what impacts these changes will actually have. First, neither Genworth or Canada Guaranty will be following CMHC’s lead. Both organizations have released statements saying that they feel that current policies provide enough flexibility for any required risk mitigation.
Next, because the other insurers have not followed suit, there are still lots of options for homebuyers. If you have a seasoned mortgage broker that understands the requirements of your deal and all the industry players, CMHC’s changes should not have much, if any, impact on your ability to secure a mortage. For many people who have stable financial history, acquiring mortgage insurance through CMHC may not be any different than it was before July 1 st . Additionally, because Genworth and Canada Guaranty have held steady in their policies, many professionals, including myself, feel that the implementation of any additional changes is unlikely.
Although these changes initially seemed to have the potential to have jarring consequences, I do not believe that this will have much of an impact on anyone who is doing their research, using a knowledgeable mortgage broker for their purchases/renewals/refinances. If anything, this serves as a great reminder to take active steps to maintain good credit, practice good savings strategies and stay on top of your finances to allow for financial success.