© fizkes / Shutterstock Frustrated couple
It's now a lot harder to get the feds to back your mortgage than it was a few months ago.
The Canada Mortgage and Housing Corporation (CMHC) has made it more difficult to get mortgage default insurance from the agency by reducing borrowing limits, demanding higher credit scores and putting restrictions on the sources of down payments.
Mortgage default insurance is mandatory for buyers that plan to put less than 20% down on a home, making a so-called "high-ratio" purchase.
The tighter lending rules are making it difficult for some Canadians to borrow and take advantage of record-low mortgage rates, but mortgage pros say there’s a “secret” way around them.
Do you meet the harsh new standards?
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The CMHC’s new rules are meant to steady the economy in the wake of the coronavirus, but it's made it more challenging to secure a mortgage.
Homebuyers seeking a high-ratio mortgage are no longer able to submit a down payment with money borrowed from credit cards, unsecured personal loans or lines of credit.
Only “traditional sources” of cash, such as savings, equity from the sale of a house or financial support from relatives will fly.
Here’s a quick breakdown of what else has changed:
| Before July 1 | After July 1 | |
|---|---|---|
| Minimum credit score | 600 | 680 |
| Spending cap | 39% of your gross income | 35% of your gross income |
| Borrowing cap | 44% of your gross income | 42% of your gross income |
Most Canadians won’t qualify for the new credit score requirements, and 57% of Canadians don’t even know what their credit score is.
If you’re even slightly worried, you should check your score for free online (don’t worry, checking doesn’t affect your score). You’ll just need to have your SIN handy and answer a few quick questions.
If your score is too low, there are simple steps you can take to improve it.
With the new spending and borrowing caps — which include your mortgage, property taxes, utilities, and more — your purchasing power as a buyer has been cut by up to 12%.
How you can skirt the rules
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If you’re not a risky borrower in the eyes of the CMHC, these changes may not affect you at all (so you should lock in one of today's record breaking mortgage rates while they're still here).
But if you do need insurance, however, here’s the “secret”: the government doesn’t care whether you use the CMHC to insure your mortgage. It just needs to know your mortgage is insured.
Genworth and Canada Guaranty are two private-sector providers who also offer mortgage default insurance. While they've typically followed the CMHC's lead in the past, this time they haven't tightened up their own application criteria for high-ratio borrowers.
So if you’re a high-ratio borrower exiled by the CMHC, look for a lender who works with either of these companies and you can still lock in an ultra-low mortgage rate today.
Is anyone else affected?
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The other good news is that the new lending rules don’t impact existing homeowners who want to take advantage of historically low rates by refinancing.
That means there’s no better time to see how much you can save on interest and your monthly mortgage payments. Refinancing now could save you hundreds of dollars a month and allow you to hold on to more cash during this time of financial uncertainty.
Lock in the best mortgage rate available to you today and get one backed by Genworth or Canada Guaranty.
Video: You Could Be Overpaying for This! Here's How to Save Some Cash (Buzz60)
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August 27, 2020 at 10:48PM
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It Just Got Harder to Get a Mortgage — Here's How to Skirt the Rules - MSN Money
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