On Wednesday, October 15, 2008 the new mortgage rules introduced by the Conservative government in July took effect. The main points are:
- The government will only back mortgages with a maximum amortization of 35 years, not 40.
- To get a government-backed mortgage, you must have a minimum 5% down payment; you cannot obtain government mortgage insurance with 0% down.
- You must meet the minimum Beacon credit score requirement of 620.
- You cannot devote more than 45% of your income to servicing debt, and your principal, interest, property tax, heating and 50% of your condo fees must not be more than 32% of your income.
- You must meet the documentation standards to obtain a mortgage, which includes demonstrating that you have 1.5% of the purchase price to cover closing costs. If you borrowed to obtain the closing costs, then you cannot extend the loan repayment more than 1 year.
On September 16, Prime Minister Harper made an election promise of $200 million annually to help new home buyers with their closing costs. Qualified applicants will be able to receive $5,000 for closing costs, which includes fees for your home inspector, lawyer, appraiser, land survey, title insurance, land transfer tax, GST, utilities hook-up, bills outstanding from the previous owner, fire insurance, GST, mortgage default insurance, and high ratio mortgage application fee.
Expect to pay at least 3% of your home’s purchase price in closing costs. If you already have a mortgage insured by Canada Mortgage and Housing Corporation, you will not be affected by these changes. CMHC will continue to offer its Flex Down program, where new home buyers are allowed to use lender cash-back incentives, or borrowed money from a credit card or line of credit, or gifts from a relative as their down payment.
A borrowed down payment is not insured by CMHC. CMHC will refund 10% of your mortgage insurance premium if you buy an energy-efficient home or upgrade an existing home to its standards.
There are other provisions you must meet besides the 5 listed above. Ask your mortgage broker to explain the fine points to you.
