UPDATE: Genworth and Canada Guaranty will not be adopting CMHC’s underwriting policy changes for insured mortgages.
Effective July 1, the following changes will apply for new applications for homeowner transactional and portfolio mortgage insurance:
- Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to our standard requirements of 35/42;
- Establish minimum credit score of 680 for at least one borrower; and
- Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes.
So what does this all mean?
Flex down mortgage will no longer be available. What was this program? It was where buyers could borrow the down payment from a credit facility, however the payment amount would have to be calculated into their debt servicing, which would negatively affect the overall mortgage amount.
Minimum beacon score for the primary applicant has been raised to 680; the average score is 650 (TransUnion).
Thirdly the GDS/TDS is being reduced to 35/42% from 39/44% – what does this mean for buyers? Prior to the stress test, a household income of $100,000 would qualify for a mortgage of $750,000, once the stress test was implemented the mortgage amount reduced to $500,000. With the reduction of the GDS/TDS the mortgage amount will reduce further to $440,000.
Note: A GDS ratio is the percentage of your income needed to pay all of your monthly housing costs, including principal, interest, taxes, and heat (PITH). Then multiply that sum by 100 and you’ll have your GDS ratio. Your TDS ratio is the percentage of your income needed to cover all of your other debts.
Information provided by Rita Cousins with Mortgage Architects. If you have mortgage related questions please contact Rita. Ready to buy before these changes take effect – give us a call!