The Canadian government has taken a strict stand on issuing loans against mortgages. If you are planning to buy a new home in the near future, you should be aware of the latest eligibility criteria for getting a loan approved. The new rules have been implemented to curb the rapid rise in property prices. Here are a few changes that you need to keep in mind:
- Mortgage insurance- The Federal statutes of the Canadian government require lenders to acquire high ratio mortgage insurance for homebuyers who make a down payment of less than 20 per cent of the value of the property. There are low-ratio mortgage insurance plans for those lenders who get a down payment of atleast 20 per cent from the homebuyers. The homebuyers need to pay the premium for this insurance so that the lender does not lose money due to defaults in payment.
According to the new rules, all homebuyers, be it high-ratio insured or low-ratio insured, need to qualify for mortgage insurance interest rates of a higher value than their contract mortgage rate or the Bank of Canada’s five-year fixed interest rate. This is known as a stress-test which all homebuyers have to pass. A homebuyer can qualify for mortgage insurance only when his Gross debt service ratio and Total debt service ratio are less than 39 per cent and 44 per cent respectively.
- Eligibility requirements for low-ratio mortgage insurance
According to the new rules, even low-ratio mortgage insurance buyers have to have a property value which is less than $1,000,000. The minimum credit score is 600. The purpose of the loan should be purchase of property or renewal of a similar loan. In case the property is a single unit, it needs to be occupied by the owner. You need to check whether you are eligible for the insurance before you apply for the loan.
- Down payments- Home buyers need to make down payments of 5 per cent of the price of a home of less than $500,000. If the price rises beyond this limit, the down payment percentage rises to 10%. For homes costing more than $1 million, the down payment is 20 percent. This can make the prospect of buying a new home even more unaffordable than before.
When you think of buying a new house, do keep in mind these new rules and criteria.