You may have heard already that CMHC has made changes to their qualifying ratios for those with less than 20% down… We have not heard whether or not Genworth or Canada Guaranty will follow suit and make the same changes.
What Are These Changes In Underwriting Policies
Effective July 1, the following changes will apply for new applications for homeowner transactional and portfolio mortgage insurance:
- The maximum gross debt service (GDS) ratio drops from 39 to 35
- The maximum total debt service (TDS) ratio drops from 44 to 42
- The minimum credit score rises from 600 to 680 for at least one borrower
- Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes
What these changes look like
“Someone earning $60,000 with no other debt and 5% down could afford approximately 10.9% less home under CMHC’s new rules,” the site noted. “That’s like jacking up the minimum stress test rate from 4.94% (where it lies today) to 6.30%!”
What is the driver behind these changes
CMHC’s economy forecast is definitely more on the pessimistic side. They are predicting that home prices will likely fall by 9% – 18% over the next 12 months. They also feel that it will take minimum 2 years to see home values back at a pre-pandemic levels. These changes are being implemented to “protect the homebuyer and reduce risk”.
To read the full article from Dr. Sherry Cooper, DLC’s chief economist, click here