Today’s buyers have a lot to take into account when they’re getting ready to purchase a home. It seems like changes have been made to qualification guidelines a few times recently – most recently by popular mortgage insurer CMHC, as of July 1st. These changes could have a direct impact on how much buyers (especially first time buyers) qualify for.
Mortgage lenders (both banks and mortgage brokers) approve borrowers using a combination of 2 different ratios which determine the maximum mortgage amount buyers can comfortably afford. These numbers take a household’s total gross income into account, as well as “gross debt service ratio” (mortgage principal + interest + heat + property taxes + GDSR) and “total debt service ratio” (mortgage principal + interest + heat + property tax + other non-mortgage debt = TDSR). Current GDSR recommendations sit at 39% and TDSR recommendations sit at 44%. As of June 30th, those rates are changing to 35% and 42%. That may not sound like a big change but it’s enough to make a significant difference to the amount some buyers will qualify for.
Example 1 for a purchase with a down payment of less than 20%:
If the total household gross income is $60,000, assuming property taxes are $2500 and using today’s current mortgage qualification rate of 4.94%, today’s maximum mortgage qualification is $283,000 (using a 39% GDS ratio). After June 30th, the mortgage qualification drops down to $238,000 – that’s a difference of $45,000!
Example 2 for a CMHC insured mortgage
If the total household gross income is $100,000, using the same assumptions as Example 1, today’s maximum mortgage qualification is $479,000, after June 30th the qualification drops down to $424,000 – that’s a difference of $55,000
At this time, there has not been any word of changes being made to un-insured mortgages (where your down payment is 20% of the purchase price or more)
If you are currently thinking of purchasing a home, it is critically important that you visit your lender to get an official (and preferably written) mortgage pre-approval.
Not only have qualification ratios been changed recently, minimum credit score requirements have also been adjusted.
Not sure where you stand? Visit your lender or mortgage broker to find out and learn how to make any necessary changes to help you put your home ownership plans in motion.
With help from Amanda Bible, Rock Capital Investments and Bobbi-Jean Brandt, The Mortgage Centre