The Canadian Housing Mortgage Corp. (CMHC) announced that they've changed the borrowing rules for homebuyers, as of July 1st, 2020. If you’re wanting to invest in Shuswap real estate, and especially if you’re a first time home buyer, these changes can impact you directly. Let’s take a closer look at these CMHC changes – and some tips to help you get organized for obtaining a mortgage pre-approval.
Know Your Credit Score
Order your credit report or connect with your favourite mortgage professional to determine if there are any mistakes on your credit bureau that need attention or that should be fixed. CMHC will be raising the minimum credit score from around 600 to instead be 680, which can significantly affect the ability for many first time home buyers to enter the Salmon Arm real estate market.
Understand Your Finances
The two key metrics used to qualify you for a mortgage are Gross Debt Servicing Ratio (GDS) and Total Debt Servicing Ratio (TDS). GDS is calculated by totaling your estimated housing costs and dividing it by your gross annual income. TDS is calculated by totaling your GDS with other existing debt and dividing it by your annual income. The CMHC has lowered the maximum GDS from 39% to 35% and lowered the maximum TDS from 44% to 42%. This means if you have a salary of $80,000, you previously could have qualified for a $400,000 mortgage, but as of July 1st, you will only qualify for a $350,000 mortgage. This is a substantial difference, and it's best you discuss an updated mortgage pre-approval with your broker or lender to identify your own affordability since the changes have come into effect.
Determine Your Down Payment
You’ll need to determine what you can afford for your down payment and don't forget to anticipate closing costs, property transfer tax (unless you are exempt) and moving expenses in your calculations. If your down payment is less than 20% you’ll be subject to mortgage default insurance. Keep in mind that with the new CMHC changes, your down payment can no longer be borrowed (ie. through a loan or line of credit); it must either be from personal savings or given as a gift.
Some good news to come out of this announcement is that private sector insurers, like Genworth Financial and Canada Guaranty Mortgage Insurance Co., have confirmed they don’t plan on moving forward with the changes that the CMHC is making. However, some unique properties may not be eligible for Genworth or Canada Guaranty, leaving you at the mercy of CMHC’s new insurance criteria.
If you’re in the market to purchase a home or invest in real estate and want to lock in a mortgage pre-approval, reach out to me today by phone 250.833.6121 or email email@example.com and I’ll connect you with my trusted mortgage partners.