My friend Jeff Zabel (email: jzabel@mortgagealliance.com) with Mortgage Alliance Canada’s Mortgage Choice in Kitchener Waterloo just sent me some more info on CMHC’s new mortgage regulations for homeowners and property investors:
1) All changes are effective April 19, 2010 with exception to change # 7 & 8
2) Qualifying rate – For loans with fixed term of less than 5 years and for all Variable rate mortgages, regardless of the term, the qualifying interest rate is the greater of: the benchmark rate and the contract interest rate. (The benchmark rate will be the average of the 5 major banks posted 5 year rate. This will be posted each Monday on a website to be announced later.
3) Refinance loan to value maximum will be 90%
4) Maximum loan to value for rental (non owner occupied) will be 80% LTV 1 to 4 units.
5) Rental income qualification. 50% of the gross rental income from the subject property may be included into the borrower’s gross annual income for the purpose of calculating the borrower’s Total Debt Service Ratio.
6) Maximum numbers of Units under CMHC Second Home. Second home product only available for 1 unit owner occupied properties.
7) Changes to CMHC Self Employed Product will be effective April 9.
- For purchase and portability the maximum LTV will be 90%.
- For refinance the maximum LTV is 85%.
Also qualification rules have changed for this product. If a client has been self employed in the same business for more than 3 years, they are NOT eligible under the CMHC Self Employed Product without Traditional third party validation of income (qualified deal). CMHC will continue to require that the borrower have a minimum of 2 years experience in the same field. This can include time spent working as a non self employed worker in the same field. Lenders are expected to obtain a copy of the business or GST license or Articles of Incorporation. Therefore if a client is self employed over 3 years, then you cannot do a self employed product. It must be qualified. If a client is self employed up to 3 years, you can do a self employed product.
8) Commissioned income will no longer be eligible for the CMHC Self Employed Product without traditional third party validation of income.
Bottom Line
If you qualify under today’s standards for a loan for 1 or 2 investment properties (whether its a condo, townhouse, older home, student rental or apartment building) that you planned to rent out and hold as long term assets, come april 19, you may no longer qualify to purchase it.
Let’s talk before then so you know all of your options.
PS – if we have an agreement of purchase and sale (a real estate contract) dated before april 19, and the mortgage is approved, the rental property can close after (they may set a timeframe, contact me for full details). You don’t have to complete the purchase by april 19, just have the contract written and accepted.
If you’d like to talk to a mortgage broker to explore your options, I can recommend one who does a lot of work with real estate investors.
Leave me a comment below with any questions, and please contact me for more information at 519-772-4376 or via email at Benjamin@BenjaminBach.com.
