NEW CMHC Mortgage Requirements | July 1, 2020 | Regina Mortgage Broker Explains The Changes

NEW CMHC Mortgage Requirements | July 1, 2020 | Regina Mortgage Broker Explains The Changes

Hello everyone my name is Kevin Carlson, I'm 
a mortgage broker here in Canada thank you   so much for joining me on my channel to learn a 
little bit more about mortgage financing. Today   I'm going to be talking about some mortgage 
rule changes that are coming about by CMHC,   now CMHC is Canada Mortgage and Housing 
Corporation. They are one of the mortgage   insurers that we have here in Canada.

There are 
two other mortgage insurers as well, there's   Genworth Financial and Canada Guaranty. What 
these companies do is they insure mortgages for   Canadians that are purchasing property with less 
than 20% down. Whenever you're purchasing a home   with less than 20% down, you will automatically be 
applied for mortgage insurance that will be added   to your mortgage. Now this mortgage insurance is 
not really insurance for you, it is not any sort   of life insurance or disability insurance, it is 
an insurance to protect the lender not you.

So   you pay the mortgage insurance premium and just 
in case, if you walk away from the property,   you go through foreclosure and the lender ends 
up losing money in a transaction like that,   which often happens by the time you have to 
pay for the lawyer fees and that sort of thing,   then the lender will go to the mortgage insurer 
and be reimbursed for the money that they lost on   the sale of your home. This mortgage insurance 
premium is a percentage of the mortgage amount   and added to the mortgage. You can pay the 
mortgage insurance premium on the closing,   but hardly any clients do that any more.

On June 
4th of 2020, CMHC announced that they were going   to be making some changes to their underwriting 
criteria when it comes to mortgage financing.   There's three major changes that are going to 
be coming into effect on July 1st of 2020. The   first change is that the minimum credit score for 
at least one of the applicants on the mortgage   application must be at least a 680. The second 
change, is that you're no longer allowed to borrow   mortgage funds to be able to use as down payment. 
I did another video previously a few months ago   regarding zero down mortgages which basically, 
that's exactly what that's based on, being able to   borrow funds for a payment on a line of credit or 
something like that, is basically what a zero down   mortgage is.

So, CMHC will no longer be allowing 
people to borrow those funds to be able to use   this down payment. The final change is a little 
bit more complicated and it's circled around debt   service ratio requirements. So, let's talk about 
debt service ratio requirements just so I can help   explain that. When you're purchasing a home in 
Canada the mortgage insurers and all the lenders,   have rules and guidelines that they have to stick 
to when it comes to getting people approved for   mortgage.

The Canadian federal government 
has limitations on the amount of mortgage   that a Canadian is allowed to take out so that 
they're not put in harm's way and given more of   a mortgage than they can afford. So what the banks 
and mortgage insurers do is they use debt service   ratio calculations. So, what they take is your 
gross household income and use that as a ratio   up against your monthly payments on the mortgage 
you're applying for, plus the taxes and condo fees   plus all of your other debts. The first number 
that we use is called the gross debt service   ratio, so that's your gross household income up 
against the mortgage the taxes and any condo fees,   so that is called the GDS or gross debt service 
ratio.

Canada Guaranty

The other number is called the TDS or   total debt service ratio, so it's the same as the 
GDS only adding any extra debt you might have,   so it is your mortgage you're applying for, the 
property tax is on the house you're buying and   any condo fees plus any payments on loans, lines 
of credit and credit cards and that sort of thing.   Under the current rules by all three mortgage 
insurers, CMHC, Genworth and Canada Guaranty,   they allow us to take you up to 39% GDS and 44% 
TDS, with excellent credit. So the third change   that CMHC is bringing in, is a limitation on the 
GDS and TDS calculations that we use when we apply   for a mortgage for a client. So instead of 39 GDS 
and 44 TDS, those numbers are going to be dropped   to 35% GDS or gross gross debt service ratio and 
42% TDS or total debt service ratio. So just for   an example let's say we have a family that has 
gross monthly household income of $10,000 per   month.

So under the current rules with all three 
mortgage insurers prior to July 1st of 2020, that   family is allowed to get a mortgage with payments 
plus the taxes and any condo fees of no more than   $3,900.00 per month. For the total debt service 
ratio for that family, they can't have any other   debts for credit cards and loans more than $500.00 
per month bringing them up to 44%. After July 1st,   if the client is applying for a mortgage through 
CMHC, then those are going to be limited a little   bit. So the gross debt service ratio after July 
1st through CMHC will be no more than $3,500 per   month but for the mortgage taxes and any condo 
fees, and then to a maximum of $700 more towards   car payments, lines of credit and credit cards 
in that sort of thing.

However here comes the   good news. Typically whenever CMHC makes any sort 
of a requirement change with this sort of thing,   generally the other mortgage insurers, Genworth 
and Canada Guaranty typically do follow suit,   they also make the same sort of changes. However, 
this time is not the case. Genworth and Canada   Guaranty are not making any of these changes. 
The underwriting criteria with Genworth and   Canada Guaranty will remain the same. If you 
have a credit score below 680 then more than   likely somebody like myself your mortgage 
broker will request that your mortgage be   insured through either Genworth or Canada 
Guaranty.

And if your debt service ratio   calculations for the home you're buying is going 
above the 35% and 42% levels, then once again,   we will be requesting either a Genworth insured 
or Canada Guaranty insured mortgage for you.   Well I think that covers most of this stuff that 
CMHC has announced with some of their changes in   limiting Canadians a little bit. But at least 
there's a little bit of recourse for people to   still be able to get approved for the mortgages 
that they're looking for under the same rules   and guidelines.

If this isn't the first one 
of my videos that you've looked at then you   may want to consider subscribing to my channel to 
be notified when additional videos come out. And   if you're looking to purchase a home or looking 
for some mortgage financing, I would be more than   happy to assist you. Please contact me through 
my website and I'll get back to you as soon as   I can.

Thank you so much for having a look at my 
YouTube channel, and have yourself a great day..

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