New investors face tighter credit score demands

Most real estate investors have sublime credit,” said Dave Butler, a mortgage broker with VERICO Butler Mortgage and largely focused on property investors. “Any tightening of credit requirements by CMHC would not affect them.”

 

That hasn’t necessarily been the case for all residential property buyers.


While the average borrower of a CMHC-insured mortgage held a credit score of 731 in 2010, that number rose to 735 for the first nine months of 2011-- the highest climb since 2007.

 

It’s a modest jump, but one that has confirmed the fears of some brokers dealing with new property investors, who haven’t yet established strong working relationships with lenders.

 

They would more acutely feel the effects of any increasing rigidity in the underwriting process, say property experts.

 

“I haven’t had a single client with a Beacon score of less than 600 get a (A) mortgage approved this year,” Nick Tassone, broker-owner of Midtown Mortgage Service in Sault Ste. Marie, Ont., told MortgageBrokerNews.ca. “We’re seeing either the lenders or CMHC stick to that recommended 600 score on high ratios. What I’ve also seen is a number of clients referred to me just after they’ve sold a home and are about to buy a new one but because their credit score has taken a hit, there’s nothing I can do for them. They’re stranded.”

The observations reflect those some other high-volume veterans, now grappling with stricter credit score guidelines for clients, regardless of how solid their incomes.

It means that CMHC recommendations are now being more closely adhered to, with most lenders declining deals that fail to meet those standards. For young investors, it means they may face more of a barrier to entry.

Under the Crown corp. “recommended” guidelines, homebuyers should have a Beacon score above 600 in order to win CMHC insurance on a loan to value of 80 per cent or higher. It jumps to 610 for LTVs of 90.1 per cent to 95 per cent and falls to 580 for conventional loans with an LTV of 60 per cent to 80 per cent.

Realtors are largely unaware of just how closely lenders and default insurers are now sticking to those recommendations, Tassone, also a real estate agent, told MortgageBrokerNews.ca.

 

“As a result, they’re not advising clients who may have taken a hit to their credit scores.”

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