Changes To Mortgage Qualification – New Rules
New Rules for Mortgage Qualification
Announced today, effective April 19, 2010, or sooner, there will be three (3) new rules that will apply to the qualification for government backed, insured mortgages (i.e. CMHC, high ratio insured mortgages). The changes are:
- Minimum down payment for non-owner occupied properties will be increased to 20% of the purchase price (currently 5%).
- Maximum one can refinance their property up to will be 90% of current market value (reduced down from 95% currently).
- The five year fixed rate will be used as a minimum for determining the mortgage amount that can be qualified for regardless of what term or product a consumer ultimately chooses.
Ultimately these measures are designed to reduce the number of individuals purchasing properties for speculation, help keep home ownership as an effective way to save, and prepare people for mortgage rates and payments that are more typical on an ongoing basis respectively.
Full news release for the changes to the rules for qualification for government backed insured mortgages.
We may see slightly different rules from bank to bank, as a bank’s guidelines always supersede that of the insurers. Banks may also decide to implement these changes earlier than April 19, 2010.
Lastly, rates are expected to remain somewhat steady through to June 2010, after which increases may be seen.
For more information on this or a related topic please contact me at any time, maury@maurylum.com.
Thank you, this was very helpful. I’m trying to understand why my friend who owns a condo valued at $465,000 with no mortgages and is for sale now — why — she cannot get bridge financing or a LOC or any short term loan on a house she bought that closes June 30 (today is June) … new house is $375,000 and she put $10,000 down … her mortgage broker says he can’t find her a lender … can you PLEASE explain to me why???? She is panicking !!!
It is hard to say without all details as many factors can affect things (e.g. level of income, type of income and employment, credit, etc.). However, one thing that comes to mind is that until her current house sells or at least until there is a firm contract on it and just waiting for the closing date, it cannot be treated as sold. So in her case, although she has a house worth 465K with no mortgage on it, banks will not treat it like she has 465K in cash as until it sells, she does not have any of her equity in hand.
Not ideal but one thing she may be able to do is get a short term solution through private financing. They may be able to do an inter alia on both properties and giver her additional funds to increase her down payment to a level suitable to them. I am guessing they would want her down payment to be 20-30% but they may be able to get the additional funds from the equity in her current home. Then, she will need to aggressively try to sell her house so that she can clear the private financing and transition to a “traditional and conventional” mortgage. Of course the rate will be higher and fees will be involved, however, she may be able to close and not lose her down payment. If you go this route ensure the private mortgage is “open” so that she can pay it off as soon as her house sells with no penalty.
Thanks for the inquiry and dropping by, let me know if you need further assistance.
Regards,
Maury
Definitely a great resource for newbies… You explained yourself and I have to say I agree.Thanks for the concise and encouraging info.