WHAT IS CMHC?
Is Canada's national housing agency, and state-owned mortgage insurer. It was originally established after World War II, to help to return war veterans find housing, and is a wholly-owned Crown Corporation of the Government of Canada
Ready to purchase a home in 2023? Get prepared now for the CMHC mortgage rules, so you're all set when it's time to make your big move.
WHAT YOU NEED TO BE AWARE OF:
1) To receive a CMHC-insured mortgage, your credit score must be no less than
2) 600. The GDS and TDS ratios maximums are both 39% and 44%, respectively.
3) Homes over one million dollars will not be eligible for CMHC insurance
4) houses valued at $500,000 or more (and under the limit of one million) necessitate an initial down payment of 5% of the first half a mil plus an additional 10% on any remaining amount.
5) For purchases below five hundred thousand dollars, you'll need to make a minimum down payment equal to 5%.
6) Anything below 20%, including this lower threshold required by certain homes, requires CMHC insurance coverage as well.
The Canada Mortgage and Housing Corporation (CMHC) has specific regulations for mortgages that it guarantees, taking the burden of potential losses away from lenders who offer these home loans.
If you are looking to make a mortgage down payment of less than 20%, then CMHC insurance is required. If not, you can always opt for private mortgage lenders or alternative private insurers who offer the same services with reduced risk. The CMHC has also amended its rules and minimum requirements in order to provide high-ratio mortgages that ensure safety and security while making such large payments.
On July 1, 2020, the CMHC implemented stringent underwriting policies in order to reduce risk and make it more difficult for potential homebuyers to qualify for a CMHC-insured mortgage. These changes were predicted by the CMCHC to decrease eligibility by up to 30%. Fortunately, just over one year later on July 5th, 2021 these new rules were reversed back original state providing much-needed relief and assistance for those looking at purchasing a home.
JULY 2021 CMHC RULE CHANGED:
On July 5, 2021, the CMHC eased its underwriting criteria to be in line with Canada's two private mortgage insurers. In doing so, these changes:
Lowering the minimum credit score requirement from 680 to 600, as well as increasing the maximum debt service ratios allowed - GDS from 35% up to 39%, and TDS from 42% up to 44%. However, it is still not permitted for individuals or households to use borrowed funds for a down payment.
WHAT ARE GDS AND TDS?:
To determine your ability to finance a mortgage, there are certain ratios that need to be taken into account. Let's say you earn $6,000 gross monthly income and have been eyeing a pre-construction condo in Edmonton worth $300,000 with an estimated mortgage payment of $1,300 per month plus property tax at $200 each month as well as electricity expenses of around 100 hundred dollars and condo fees amounting to four hundred bucks.
These costs all make up the gross debt service ratio (GDS). In this case, the GDS will be:
($1,300 + $200 + $100 + $400) / $6,000
= $2,000 / $6,000
= 33,3%
The debt-to-income ratio is a prudent 33,3%, which falls under the CMHC GDS limit of 39%. Still, this borrower must also pass CMHC’s TDS requirement to be eligible for approval. For instance, if they are paying $700 per month on their car loan with an associated interest rate, then they will have passed all requirements.
($2,000 + $700) / $6,000
= $2,700 / $6,000
= 45%
Unfortunately, since this borrower's rate is surpassing the 44% threshold, they are no longer eligible for consideration.
HOW WILL THE RECENT MODIFICATIONS TO CMHC REGULATIONS IMPACT YOU?:
Through the implementation of these fresh CMHC regulations, an array of homebuyers will become eligible for advantageous CMHC mortgage coverage, not to mention a larger loan sum.
Let's suppose that your total gross annual income is $100,000 and you have no housing expenses or other costs such as property taxes. Based on the former GDS ratio of 35%, you should be able to receive mortgage approval for a monthly payment of up to an impressive $2,917!
Rejoice! The GDS ratio has increased to 39%, giving you the ability to secure a higher mortgage amount with a monthly payment of up to $3,250. This means that your maximum borrowing limit is now much larger than before.
Thanks to CMHC's reversal of mortgage rules, individuals earning $100,000 annually can now be approved for a loan of up to $687,000 over the course of 25 years. This means that instead of having an upper limit set at around $616K and paying a monthly rate in the ballpark of $2,917 with 3% interest rates; you'll pay just slightly more each month at nearly $3,250 but have access to much larger funds. That’s an extra sum amounting to nearly seventy thousand dollars!
CMHC INSURANCE RULES:
For those looking to take out a CMHC-insured mortgage, there are some standard requirements that remain the same in 2021.
- Situated in Canada, this property must fulfill the desired location criteria.
- The maximum allowed purchase price or property value is set at $1,000,000.
- A down payment of at least 5% is required to cover the costs.
- Your amortization period to up to twenty-five years with our system!
If you're thinking of taking out a residential mortgage, be aware that Canada Guaranty and Sagen (Genworth) require basic requirements to access one. Additionally, it is only possible to secure a single CMHC-insured mortgage at the same time - meaning applying for an additional insurance policy covering another home isn't allowed
Homebuyers who are purchasing a property valued at $1 million or less must put down 5% on the first $500,000 and 10% of any remaining amount. Sadly, CMHC insurance is not available for residential homeowners whose purchase price or property value is over $1 million. These same down payment requirements apply even if the multi-unit building will remain owner-occupied and has up to two units in it.
The down payment requirements for multi-unit properties differ depending on the number of units and whether or not the owner will occupy a unit. If you are purchasing a property with 3 or 4 units and plan to live in one, then 10% of its value is required as your minimum down payment. Whereas if it's a small rental loan where you won't be occupying any unit, 20% is necessary. Furthermore, up to 50% of your total rent can factor into CMHC insurance eligibility when evaluating debt service ratios!
The CMHC offers alternative mortgage loan insurance for multi-unit properties with more than 5 units. Thanks to the new MLI Select, you could be eligible to receive a down payment of as low as 5% and have amortization that can extend up to 50 years on any property containing over five units that satisfy the necessary criteria.
If you're looking to purchase a home, Sagen (Genworth) and CMHC both require traditional sources like savings or gifts from relatives for your down payment. However, if you turn to Canada Guaranty's mortgage insurance products, they allow borrowers the opportunity to use loaned funds as their down payment!
In 2012, the Office of the Superintendent of Financial Institutions (OSFI) set a new maximum amortization for insured residential mortgages in Canada - 25 years. This change was preceded by drops from 30 to 35 and then 40 years in 2011 and 2008 respectively.
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