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

September 17, 2023 | Posted by: Aaron Phinney

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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