Thinking about buying a new home this year?

Nova Scotians may struggle to secure a mortgage because of new policy

Making the biggest purchase of your life just got a bit more challenging for some Nova Scotians.

The Canada Mortgage and Housing Corporation (CMHC) has changed its underwriting policies for insured mortgages, which may make it more difficult for people to buy a home.

Senior Mortgage Advisor Clinton Wilkins with the Clinton Wilkins Mortgage Team says that as of July 1, 2020, CMHC is requiring a higher credit profile and they’re tightening their debt servicing requirement. They want to see a minimum credit score of 680 — the Canadian average is 650 — and they won’t accept a borrowed down payment.

“This means that anyone planning to use a line of credit or the Down Payment Assistance Program (DPAP) for their down payment will no longer have those as options,” says Clinton. “This will, unfortunately, mean some people are taken out of the market.”

Clinton says the rule change is because the COVID-19 pandemic has negatively affected the economy, which CMHC predicts will lead to a decrease in home prices over the next 12 months.

Prices may be going down, but there are currently bidding wars to nab what new houses are on the market. After months spent stuck inside under quarantine, Clinton says many people are more eager to buy their first home or upgrade to a new one — especially with the lingering thought that a second wave might keep us “staying the blazes home” again in the fall or next winter.

“When everybody was quarantined at home, they weren’t just baking banana bread — they were busy getting preapproved,” quips Clinton.

The rule change was announced on June 4, which Clinton says prompted even more people to hurry to get themselves pre-approved for a mortgage. He currently has nearly 75 buyers who have been pre-approved for mortgages, but there’s limited inventory on the market.

“I’ve heard that Halifax’s population is predicted to grow by 25 per cent over the next five years, and we don’t have the housing stock to support that kind of growth,” says Clinton. “With limited inventory already, this might mean ‘buy now or buy never.’”

CHALLENGES FOR RURAL BUYERS

Anyone putting less than 20 per cent as a down payment requires their home’s mortgage to be insured, and there are three mortgage insurers here in Canada: the Canada Mortgage and Housing Corporation (CMHC) and two private options, Canada Guaranty and Genworth Financial.

While CMHC insures the majority of the high ratiopurchases in rural Nova Scotia, Clinton says Canada Guaranty and Genworth have publicly stated that they do not plan to follow suit — which means buyers looking in rural areas will be limited to CMHC.

“They don’t want all of the riskier deals, so they’re less likely to approve someone in rural Nova Scotia,” explains Clinton. “The way they see it, the further outside Halifax the home is, the riskier it is because it may take longer to sell if they wind up with it.”

UNBIASED ADVICE

Because some lenders will only use CMHC to insure mortgages, Clinton says it’s more important than ever to talk to someone who can present you with every available option.

“A house is the biggest purchase of your life, and a mortgage is the biggest debt,” says Clinton. “Seeking the advice of an unbiased mortgage professional is so important.”

Clinton suggests that anyone who had a pre-approval prior to July 1 should revisit it with an unbiased mortgage professional to make sure they’ll still qualify under the new rule.

“If you do still qualify, we can have your pre-approval refreshed. If your file won’t work with CMHC anymore, you can talk to us and we’ll see if it can work with one of the other two insurers,” says Clinton.

Although the new rule might make it sound impossible to secure a mortgage, Clinton says mortgages are an option for everyone — it just may involve “getting a little more skin in the game.”

“Home ownership is part of the Canadian dream, and it’s still possible. We have access to about 40 different lenders and we’re still doing mortgages every single day,” says Clinton. “There’s always a solution.”

To learn more about your mortgage options or ask questions about CMHC’S rule change, please reach out to the Clinton Wilkins Mortgage Team by visiting Teamclinton.ca.

As of July 1, 2020, CMHC is requiring a higher credit profile and they’re tightening their debt servicing requirement.