Get ready for it, stricter debt ratio standards are on the way! When CMHC tightened mortgage rules last year, among the changes were stricter debt ratios and income confirmations. For typical borrowers, these are key factors in determining whether or not you’ll get a mortgage. If you’re close to the line on debt and income, last year’s changes have made it more difficult for you to qualify. And unfortunately, things are about to get even more difficult!
On June 27, 2013, CMHC issued new guidelines for calculating debt ratios and confirming income documents. While most lenders have already been following these rules, CMHC is now closing the “loopholes” that allowed some lenders to offer easier approval for borrowers with tight debt ratios.
Here are some of the rules that have been clarified:
§ If you have variable income from things like bonuses, tips and investment income, lenders must use an amount not exceeding the average income of the past two years.
§ If you own other non-owner-occupied rental properties, the principal, interest, property taxes and heat on those properties must be deducted from gross rent revenue or included in “other debt obligations” when Total Debt Service ratio is calculated.
§ For unsecured credit lines and credit cards, no less than 3% of the outstanding balance must be included in monthly debt payments.
§ For secured lines of credit, lenders must factor in “the equivalent” of a payment that's based on “the outstanding balance amortized over 25 years.”
§ For heating costs, lenders must obtain the actual heating cost records of a property or use a set heating cost formula. This can double or triple the cost factored into debt ratios on larger properties, and reduce it on smaller ones.
These are just some of the guidelines and they can change depending on the Lender. Since the new rules take effect on December 31, 2013, it’s important to talk to me if you are currently shopping, refinancing or if your current mortgage is up for renewal soon. Until that deadline, I still have access to a select group of lenders who may be able to provide the mortgage approval you need. For more information, please call me today at 604.889.6750.