You may have heard about new rules to qualify for a mortgage. We sat down with mortgage expert, Jenn Slater with OneStreet mortgage, to provide you with everything you need to know.
CMHC has tightened their rules on qualifying for a mortgage and there have been three pretty significant changes. Read below for the changes on qualifying rules start- ing on July 1st, but also some good news on current rules to qualify! Slater shares your ‘need to know’ information before the change this July:
NUMBER 1 – Borrowing your down payment is no longer an option.
We used to be able to let clients borrow their downpayment, or even a portion of it, from a loan or line of credit. This is no longer an option, so buyers will have to ensure they have their full down payment, a minimum of 5%, available for their purchase before taking the next step.
NUMBER 2 -Minimum credit score of 680.
At least one of the borrowers must have a minimum credit score of 680 to qualify for a mortgage, however, this has recently also become more difficult. Equifax (where we get credit reports from) recently changed their system and many scores have appeared lower than they previously did. So be sure to always be on top of your credit, pay your payments on time, and try not to use more than 75% of your limit on revolving credit like credit cards or lines of credit.
NUMBER 3 – Debt to income ratios reduced.
The debt to income ratios have been reduced. I (Jenn Slater) previously could use 39% of a borrowers income for housing costs (mortgage/taxes/ heat) and 44% of their income for overall payments (mortgage/ taxes/heat/all other payments, like loans, lines of credit, student loans, etc.) These ratios have been dropped to 35% for housing costs and 42% for overall payments. Now for the good news. CMHC is one of three mortgage default insurers required when a buyer has less than 20% for a down payment. Although CMHC has reduced their qualifying rules and made it more difficult to qualify, at least one of our other insurers has indicated they will NOT be changing their qualifying rules and they will continue to allow buyers to qualify for a new home as of our current rules.
Though COVID has been making it more difficult for everyone, we want to ensure that you have all the necessary information going forward into buying a home.
Any questions? Feel free to get in touch with us and we’d be happy to explain it all!
Taylor and Léo