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CMHC’s New Mortgage Rules Start July 1 – Here’s What You Need to Know

COVID-19 has shaken up the real estate market, but the good news is most markets saw increased sales activity and home prices in May, compared to April. The market seems to be improving slowly and as restrictions relax and people return to work, we expect to see further improvements.

Despite this, the government-backed Canada Mortgage and Housing Corporation (CMHC) announced it will be tightening the mortgage rules starting July 1, 2020. This move by the CMHC is to protect individual and national economic health by ensuring mortgage borrowers are not putting themselves into too much debt.

What this means for homebuyers:

  • It will be harder to obtain CMHC’s default mortgage insurance, which means having a down payment of 20% or more will help you acquire a mortgage easier.
  • A credit score of 680 is now required, rather than the previous 600. A 680 score is “good” compared to 600, which is rated as “fair”.
  • There will be changes to the debt servicing ratios. The Gross Debt Service (GDS) ratio is the percentage of your household income that is used to cover your housing expenses, like mortgage, condo fees, and heating. With the new rules, this should be at 35%, compared to 39% under the old rules. The Total Debt Service (TDS) ratio - which includes all your GDS expenses plus other debts like car payments - should be at 42%, compared to the previous 44%. Use the CMHC’s Debt Service Calculator to compare your monthly debt payments and housing expenses to your gross household income.

Canada’s other two mortgage insurers, Genworth Canada and Canada Guaranty, confirmed they will not be following CMHC’s lead to change their underwriting policy related to debt service ratio limits, minimum credit score and down payment requirements.

Need to buy a home? Purplebricks can help.

Purplebricks is here to support Canadians by providing them full-service real estate while saving them thousands in commission when selling their home. As for homebuyers, we share the commission by giving buyers $2,000 in cash back* when they buy a home with us. Call 1-855-999-9740 for more information.

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