Buying a home for the first time is a big step. With many people still having trouble saving up for a down payment, many consider whether or not getting help from family members to buy a home is an option. One way of doing this would be getting a cosigner. However, it’s important to know that there are limitations on what someone can do to help you purchase your first home.
There are certain rules on who can cosign and when they can cosign in Canada. So before you ask someone if they will cosign as a first-time home buyer, here’s what you need to know about Canadian law and how it relates to first-time homebuyers in Canada.
What is a cosigner?
A cosigner is an individual who agrees to be responsible for the repayment of a loan if the borrower defaults. The cosigner will guarantee that they will repay the debt in the event that the borrower does not.
In Canada, any individual over 18 years old can cosign on a loan for any amount of money, regardless of whether or not you are related by blood.
However, someone cannot be cosigned on their own loan, so if you want to get a cosigner for your home loan, then that person must also be getting a mortgage with their own bank or lender.
There is no limit to how many people can cosign on one loan, but it’s important to keep in mind that you can only have one cosigner per lender. This means that if you have one cosigner and go into default, they are out too.
When can a person become a cosigner?
To become a cosigner, your relationship with the person you are asking for help must be defined as a close one. This means that you must know each other well and have similar financial means. Because of this, often, someone’s spouse or children will not be able to cosign for them.
In addition to this, the person being asked cannot be related to you by blood or law. The person being asked also cannot be in a pre-existing contract with you which prevents them from cosigning.
Can first-time homebuyers have a cosigner?
In Canada, a first-time home buyer can have a cosigner if they meet certain conditions. To be considered a first-time homebuyer, you must not have owned any other property (other than your primary residence) in the last two years. Additionally, you must not own property in another country or province as a first-time homebuyer.
If you’re eligible to have a cosigner, you will need to be approved by the bank or lender willing to allow it. The approval process includes proving that one of the following is true:
- You have enough income to repay the loan and make your payments on time.
- Your spouse has been employed for at least six months and makes more than $25,000 per year.
- You’re buying with someone who is related to you and who earns more than $25,000 per year.
- You’ve had an existing mortgage for at least five years, and your new mortgage payment will be less than 25 percent higher.
If you are denied having a cosigner by the bank or lender because you don’t meet these requirements for approval, there are alternatives that might work in your case. For example, lenders like TD Bank may offer loans without requiring a cosigner.
If you want to get a cosigner, be sure that they are in good standing with the law. For example, if they have any outstanding debts, they will not be able to cosign for you. The person who is cosigning has to be at least 18 years old and cannot already have any legal obligations.
Furthermore, certain rules govern how much money the person who is cosigning must put down for the property before it’s purchased.
Cosigning does not have to be tied directly to getting married or entering into a pre-nuptial agreement. This means that your partner doesn’t need to live with you for them to sign on as your cosigner. They also don’t need to own property with you or live in your same home.
Depending on where the person signing as your cosigner lives, they may need their own lender and mortgage documentation before being able to sign on as your cosigner.
