Can a first-time home buyer have a mortgage co-signer?

September 17, 2023 | Posted by: Manpriit Pabla

Can New Home Buyers in Canada Use a Mortgage Co-Signer?

Struggling to secure a mortgage or need a financial boost? Consider bringing in a co-signer. Dive deeper into this and other home-buying tactics.

Understanding Down Payments in Canada

The down payment, the upfront amount paid when acquiring a property, plays a pivotal role in a Canadian's journey to home ownership. This sum is deducted from the home's total cost and isn't part of the mortgage. Naturally, a heftier down payment is advantageous-it accelerates mortgage repayment, reduces long-term interest, and potentially unlocks pricier properties.

Canada's Down Payment Guidelines:

• For homes priced at $500,000 or below, the starting down payment is 5%.
• For properties between $500,000 and $999,999, it's 5% for the initial $500,000 and 10% for any amount exceeding that.
• Properties priced at $1 million and above necessitate a 20% down payment.

What If a 20% Down Payment Isn't Feasible?

Mortgage insurance can significantly inflate home ownership costs, ranging from 0.6% to 4.5% of the mortgage based on the down payment size. If you opt to include the insurance premium in your mortgage instead of an upfront payment, you'll accrue interest. Hence, striving for a 20% down payment to sidestep these additional expenses is advisable.

Alternative Solutions:

• Postpone your purchase to bolster your down payment, keeping in mind that property prices are ever-fluctuating.
• Adjust your expectations-perhaps a condo or townhouse over a standalone home-or explore more economical neighborhoods.
• Seek financial assistance from family, either as a gift or a loan.
• Contemplate having someone co-sign your mortgage.
• Leverage your Registered Retirement Savings Plan (RRSP) via the Home Buyers' Plan (HBP).
• Explore the First Time-Home Buyer Incentive (FTHBI), the Home Buyers' Tax Credit, or the newly launched FHSA in 2023.

The Mechanics of Mortgage Co-Signing

For young, single, or self-employed individuals, securing a mortgage can be daunting. If you're struggling to get approval or desire a more substantial loan, ponder over roping in a family member, like a parent, as a co-signer.

Co-Signing vs. Co-Borrowing: What's the Difference?

While a co-signer vouches for the borrower without owning the property, a co-borrower is both a stakeholder and a borrower. Typically, spouses act as co-borrowers, but parents can also join their adult children in this capacity.

Is Buying a Home with a Close Friend a Good Idea?

Some first-time buyers contemplate co-owning a home with friends or family. Pooling resources can amplify borrowing power. However, it's essential to anticipate potential challenges, like disagreements on selling or financial hardships. It's not a sitcom setup, and it's not for everyone. If you're considering this route, consult financial experts and legal professionals.

Exploring Home-Buying Avenues

In the current dynamic housing market, there's no one-size-fits-all approach to home buying. Many are harnessing a mix of financial tools, like FHSAs and FTHBIs, to make their dream a reality. Regardless of whether you opt for a co-signer or tread solo, the joy of holding your first home's keys is unparalleled!

If you have any questions at all please reach out and I would be more than happy to assist.

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