Home Buyers – What Ottawa Giveth, Ottawa Taketh Away

First, the good news. This past year has seen a squeeze on credit from all sides. Even banks are experiencing rising costs in mortgage funding.

In response, the federal government has initiated a program to buy $5 billion in mortgages from Canadian banks. It’s part of Ottawa’s larger scheme to purchase $25 billion in home loans.

Under the plan, the Canada Mortgage and Housing Corporation will purchase all current loans. The banks will then use this cash to create new loans.

And now, the not so good news. Recent changes by Ottawa to tighten loose mortgage conditions will actually make it harder for some home buyers to get a mortgage now.

Here’s why:

1. Increased Total Debt Service (TDS) Ratio.  Under 100 percent financing, the TDS limit was maximum 40 percent. Now, the TDS has been upped to 45 percent.

2. Decreased Loan-To-Value Ratio.  You used to be able to get a loan to cover up to 100 percent of your home’s cost. Now you can only get up to 95 percent, which means you have to come up with at least 5% yourself.

3. Decreased Amortization Period. The maximum mortgage pay-off period has been shortened from 40 to 35 years.

4. Higher Credit Score.  You’ll now need a credit score of at least 620 to qualify for a mortgage. Home buyers who just barely make it into this bracket should consider applying for a mortgage ASAP and be very careful not to do anything in the meantime to decrease their score.

5. Proper Loan Documentation.  If you’re self-employed or own a business, you can get a mortgage by showing proof on paper (i.e. business license, GST returns, etc.) that you’ve been running your business for at least two years.

So it’s not all bad news. With just 5 percent down payment, and a credit score of at least 620, you can get up to $700,000 without having to show proof of income.

Now, whether or not the payments are still affordable – well, that’s up to you to decide!

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This entry was posted on Sunday, October 19th, 2008 at 3:33 pm and is filed under Tips for Buyers, Toronto Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

One Response to “Home Buyers – What Ottawa Giveth, Ottawa Taketh Away”

1. Credit Score On Credit Speak » Blog Archive » Home Buyers – What Ottawa Giveth, Ottawa Taketh Away says:

   October 25, 2008 at 8:09 pm

   [...] Home Buyers – What Ottawa Giveth, Ottawa Taketh Away Higher Credit Score. You’ll now need a credit score of at least 620 to qualify for a mortgage. Home buyers who just barely make it into this bracket should consider applying for a mortgage ASAP and be very careful not to do anything in … [...]