One of the most common options in today’s mortgage market is adding a co-signer to your mortgage. With Canadian homes becoming less affordable, homebuyers are finding it increasingly difficult to qualify for their desired home. In addition to soaring home prices, unaffordability is often increased by other factors such as limited income, minimal down payment, lack of credit, increased qualifying rates, or even an accumulate of investment properties.
Let’s break down everything you need to know about your co-sign options below.
- What Is a Co-Sign?
- How Does a Co-Sign Work on My Mortgage Application?
- How Does a Co-Sign Work For The Co-Signer?
- When Would it Make the Most Sense to Include a Co-signer?
- Can I Remove the Co-Signer in the Future?
- Will a Co-Signer Help if I Don’t Have Enough for a Down Payment?
- Are Co-Sign Mortgages a 50/50 Ownership?
A co-sign is the addition of another borrower added to your application for the purpose of increasing your total qualifying power.
- The process of adding a co-sign to your application is a straightforward step. Essentially, we are factoring in both the income AND the debts of that applicant, including their credit worthiness.
- A co-sign applicant is looked at the exact same way a primary borrower is viewed on a mortgage application.
With any co-signed mortgage, as the co-signer, you are pledging your responsibility to repay the mortgage loan should the primary borrower default on their mortgage payments. As a co-signer on a mortgage, you share in the ownership & the liability of the property.
- While there are many situations where a co-sign might make sense, some of the most common times a co-sign is added to a mortgage application is due to a lack of income or credit.
- Many will also add a co-sign to increase their total purchase power, add a home equity line of credit, or to simply bring another borrower on title.
- Other factors for adding a co-sign may include an accumulation of too much household debt, an increase in the qualifying rate, or having a series of rental properties that simply make it harder to qualify, despite the real-life cash flow component.
- Now this is a very common question as many people look at a co-sign mortgage as a temporary fix to a long-term investment.
- The steps to take a co-signer off title are quite simple. Through the process of refinancing your home, you can restructure your mortgage terms without that additional borrower.
- When removing a co-signer from title, you will need to consider whether you can qualify for that mortgage without their income. Additionally, market factors such as your current interest rate compared to your new interest rate need to be considered. In times of higher interest rates, the increase to your monthly payment can often be corrected by increasing your amortization to 30 years.
- It all comes down to proper preparation & planning.
- Unfortunately, in this case, having a co-sign would not change the amount you are required to put down for your down payment.
- When adding a co-signer, you are looking to add income to your application in the hopes of increasing what you can ultimately qualify for.
- When a greater down payment is needed, we would then look at options such as gifted funds, home equity lines of credit, a co-signer with additional down payment funds, or putting together a plan to help you save for your future home.
There are two ways you can purchase property in Canada
- Joint Tenancy – When you purchase a home as joint tenants, you both own the property equally as one.
- Tenants in Common - When you purchase a home as tenants in common, you can legally divide ownership shares of the asset between the owners how you like.
- The big difference between purchasing property as joint tenants over tenants in common is that a joint tenancy creates a “right of survivorship”, meaning the shares of the property pass onto the other owner(s) and not to their beneficiaries.
Your option to register your mortgage as a Joint Tenancy or Tenants in Common will greatly depend on the lender. This is why it’s important to have this conversation with one of our trusted mortgage advisors as each lender will have different requirements as to how they want to register your new mortgage.