Reviewing CMHC’s New Lending Criteri

The Canada Mortgage and Housing Corporation (CMHC) is tightening its lending standards, making it tougher for Canadians, especially first-time home buyers, to borrow money to purchase a home.

As of July 1st, at least one applicant must have a credit score of 680, an increase from the current score of 600.

The gross and total debt servicing ratio will move to 35% (from 39%) and 42% (from 44%) respectively. The gross debt service (GDS) ratio, also referred to as the housing expense ratio is the proportion of income going towards housing related debt, while the total debt service (TDS) ratio adds in all other consumer loans such as credit cards and auto loans in the ratio.

CMHC is also barring “non-traditional sources of down payment or unsecured lines of credit that increase indebtedness.” This refers to a practice of someone using an existing line of credit or other lending sources to come up with the down payment.

Does this mean a grandparent who wants to take out a small mortgage on their own property to help finance their grandchild's down payment no longer allowed? When asked, Beverly LePage, account representative with CMHC replied, “The situation you are describing would be gifted funds for down payment, which continues to be recognized by CMHC has a traditional down payment source by CMHC.”