How To Prepare For New Mortgage Rules

In a recent blog post I outlined new mortgage rules that will be taking into full effect very soon. A response from a reader (Steven Fudge at http://www.urbaneer.com) said to me I should tell people not only about the new rules but how to react and prepare for them. I’d like to offer some pointers especially if you have less than 20% down and will go with a mortgage-insured loan.

With respect to income, keep your documentation in a safe place but make sure you have it. If you can get your income documentation up front it would help your loan greatly, as lenders love seeing everything up-front to be able to make their decision quicker. Lenders will sometimes ask for Notices of Assessment so make sure you complete your taxes on time as well, and have these handy as T4s will not always be suitable replacements.

For stated income, I hate to say it but be prepared to show more income and also to pay more for your mortgage in case the “A” route does not go through. It is an unsaid rule but any stated-income borrower who will need in excess of $100,000 for their mortgage to be approved will most likely be declined as the insurers use a “reasonability scale” to determine whether that income comes in line with industry average. An example, a recent application of mine was declined because the insurer felt that $85,000 was too much to state for a dental hygienist, even though she had three part-time contracts that earned her in excess of that amount. If your mortgage won’t be approved by an “A” lender then 20% down is usually the minimum to go through the “B” route so be ready to have some extra funds for your purchase.

Rental Income


Genworth’s Reaction

Smooth, Genworth. Real smooth. In a press release reacting to CMHC’s most recent further clarification of mortgage rule qualifying, Genworth has decided to (for now) take its own line on the guidelines and has said that the differences between CMHC and Genworth will continue in how each entity views risk. Kudos! Perhaps the changes won’t be here forever as Genworth’s hands may be tied however there are a few lenders out there that have not adopted CMHC’s policies since they only deal with Genworth! Win-win! The problem is if you go to a bank to get a mortgage you won’t have the choice so yet another reason why a #mortgagebroker or #mortgageagent is the right way to go when going about financing your property. (See what I did there? hashtag!)


More Changes!

Holy toledo, pretty soon it’ll be near impossible to get a mortgage unless you have zero debt, 30 years tenure at the same Government job with an iron-clad pension.

Keeping in mind that these new mortgage rules are affecting only cmhc-insured mortgage clients, the changes are pretty dramatic. What is most worrying is the “heating cost” change, but I’ll get to that in a second. First, a summary of the new rules:


This one makes a lot of sense, actually. In cases where there is a base salary plus bonus, we are now to use a 2 year ascending average. When the income is descending we can only use the lower number. Fair’s fair.

Stated Income

Further clarification on what is “reasonable” - well, it appears nothing is reasonable to CMHC. CMHC’s self-employed or “Stated Income” program applies to clients with no more than three but no less than two years of self-employment. Try finding that client. IF you do, then furthermore the income must make “sense”. To who? To them. That’s all that is said. The income must be “reasonable”. Basically this is saying anyone who says they make more than $100,000 will need to prove it. Ok, fine. So self-employed should have more than 20% down and should be heading to Home Capital and Equitable Bank, and pay 1 to 2% higher for their mortgages. Fair? You be the judge.

Rental Income

I like this one. Now we must deduct the taxes maintenance and heating from the gross rental income to deduce the net rental income. That’s fair, because it uses common sense. What isn’t thought of is that expenses are also deducted from actual income of a client, of a rental property. I’ve been doing it this way for years so no effect on my clients.

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