We can all agree that the situation surrounding the COVID-19 pandemic has increased uncertainty over the economy, employment, and finances. As of May 2020, the employment rate jumped to 13.7% causing serious financial stress for many Canadians.
For the real estate and mortgage industry, this pandemic introduces significant concerns and risks for homebuyers and homeowners. One one side, we have many homeowners left without a job or with reduced hours that are wondering how to pay their mortgage. One the other side, we have potential buyers with financial security actively searching for their new homes as interest rates have never been so low.
As conditions continue to evolve in housing markets across the country, the Canadian Mortgage and Housing Corporation (CMHC) implemented new eligibility rules for mortgage insurance. These changes are designed to stabilize housing markets by reducing demand and putting the brakes on housing price growth.
Effective since July 1, here are the changes announced by CMHC:
- CMHC has raised the minimum credit score for a potential borrower from 600 to 680 in an attempt to reduce the number of first-time buyers on the market.
- CMHC has banned all forms of non-traditional sources of down payment that increase indebtedness. This refers to the practice of using an existing line of credit or different lending sources to come up with a down payment.
- All buyers will be limited to spending up to 35% of their gross income on housing, and can only borrow up to 42% of their gross income once other loans are included.
These new rules will apply for new applications for homeowner transactional and portfolio mortgage insurance. For more information visit the Canadian Mortgage and Housing Corporation (CMHC).
Want to know more? Get in touch with a broker near you!