CMHC announced new mortgage rules effective July the 1st. Find out if these changes will impact you if you're a home buyer and the city of Toronto,

Before I get into the details of these changes, if you are a real estate investor or someone who is refinancing your home mortgage, these changes will not impact you. However, if you are a home buyer who was putting less than 20% down, then you might be impacted by these changes. Here are the four details of these changes CMHC announced.

One, at least one borrower has to have a credit score of 680 or more. The GDS ratio is 35%, down from 39%. And then the TDS, which is the total debt service ratio requirement, is 42% down from 44%. And last but not least, unsecured borrowed funds will not be allowed to be used for the down payment.

How is this going to impact Toronto's real estate market? Now we have to break it up into two portions. One is the freehold market, which is the detached, semi-detached home. For the most part, getting a freehold property under a million in the city of Toronto is pretty rare. So I don't see many changes or impact in that specific market. Having said that, the condo market, I can see some impact because you have first-time buyers, or possibly move up buyers who are putting less than 20%. Some of these buyers will no longer qualify for the same purchase amount. And these changes effectively bring their purchase price down by up to 11%.

Fortunately, so far Canada Guaranty and Genworth, the other two mortgage insurers, have not announced that they'll be following suit with these changes at CHMC. So far, your mortgage broker or bank has an option of sending that specific mortgage to Canada Guaranty or Genworth to get you approved under the existing rules and not to be impacted by the CMHC changes. If the other two insurers follow suit and change their guidelines to match CMHC, then this will present a challenge for first-time buyers or mover buyers who are putting less than 20%, because their purchase price effectively comes down by approximately 11%, which will force them to go out of the city, further away from the core to find something for that specific price. Or they might have to come up with the difference via gifted down payment from family.

From a real estate investor perspective, this possibly could create additional rental demand, because if these buyers do not qualify and they don't want to go to Hamilton or Kitchener or the outskirts of the greater Toronto area, unfortunately these buyers will be pushed out of the market and become tenants. That could potentially down the line create more rental demand.

Where I see these changes impacting the market more outside of the city, so again Hamilton, Kitchener, Waterloo, maybe out in Cobourg, the smaller towns where the purchase price is lower compared to the city of Toronto. But obviously we'll have to see how things are going to play out and how these changes will impact the real estate market.

If you're buying your first home, moving up, and you're not sure how these changes will impact you, please feel free to reach out.