Monday, April 4, 2011

Insured Mortgage Changes

Attention Realtors:

Along with the well publicized new mortgage rules that took effect on March 18th of this year, there have been some unpublished changes to debt servicing ratios by CMHC that will reduce purchasing power for home buyers who are putting less than 20% down. CMHC is using more discretion when approving insurance. If they feel part of the application is not strong enough they can reduce purchasing power, usually they will ask for a co-signer. One is not always available.
These changes can affect the maximum purchase price for a client by up to 20% in some cases when the lender uses CMHC for the default mortgage insurance.  For example, let’s say you have a client with excellent credit (680+ beacon score), pays credit cards and does not have huge loan payments.  With CMHC the ‘NEW’ maximum GDS ratio that they appear to be allowing is 35% of gross income.  This is a huge change. Previous to the past couple weeks they would normally have allowed the client to use up to a 44% GDS ratio.
The Solution here is taking the file to a lender that will use GENWORTH for the default mortgage insurance.  Genworth is still allowing clients to go up to a 44% GDS ratio which means that they are approving higher purchase prices compared to CMHC for the EXACT SAME CLIENT.

We are starting to see a trend of people coming into our offices not satisfied with what their lending institutions have approved them for.  One young lady who had a 43,500.00/yr income was approved for a $180,000.00 purchase price by her bank.  By simply switching her approval to a lender that insures with Genworth, we sent the pre-approval certificate to her Realtor for a $260,000.00 max purchase price.

This may not be the best idea for all purchasers.  We explain to people the dangers of over buying.  However, there are instances where this is the best solution, maybe they are a first year nurse or apprentice, their income will increase significantly over the next few years.  There are times when one spouse is self employed and does not want his/her name on title.  Other incomes that are not claimed are also quite common.   
Currently the biggest GENWORTH supporter in the market is Scotia Bank and we happen to have a very good relationship with them.  Our Team has “Presidents Club” status with Scotia and this allows us to offer rates that are not available to the public as well as allowing us to direct them as to which insurer we would like them to use for default insurance on a given file.  Please note that some other banks/lenders will NOT send a deal to Genworth even if the Mortgage Agent/Broker asks. 
We feel this is extremely important news for our Real Estate colleagues and wanted to let you know.

If you have any questions regarding mortgages please do not hesitate to ask.

Ron Miller   
Butler Mortgages
4-318 Dundurn St. S.

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