More Changes to Mortgage Rules

A couple of weeks ago the Office of the Superintendent of Financial Institutions (OSFI) announced its complete B-21 guidelines for underwriting insured mortgages (less than 20% down payment/equity).  The industry has until June 30/15 to implement the new guidelines.

Cash-back mortgages:  OSFI is still allowing these but it should not be considered part of the down payment, meaning the borrower is required to show sufficient down payment over & above the cash back amount.  Gifted down payment is still acceptable.

Borrowed down payment:  OSFI is still allowing the borrower to use their credit line or credit card for the full (or partial) amount of the down payment, provided that the Total Debt Service ratios (TDS) are in line.  However they talked about “greater risk mitigation and/or additional premiums to compensate for increased risk”.  This could mean a higher down payment and/or higher insurer premiums in the future.

Debt ratio calculations:  OSFI “encourages the use of an industry-wide standard for the calculation of debt service coverage ratios”.  Currently it’s CMHC’s method with a maximum TDS of 44% for credit scores over 680.  This hasn’t changed.

Self-Employed:  The lender must verify the income from an “independent source”.  This may be the gross income indicated on the tax return for the sole proprietor or financials for the borrower who owns a corporation.

For borrowers with 20% or more equity/down payment, the financial institutions have a little more latitude in their underwriting practices.  If you are seeking a mortgage and feel you’re in a situation where your application may get declined, contact me today as my speciality is bank turndowns.