Having parents as co-signers on your mortgage
It's can be tough to qualify for a mortgage and sometimes we need our parents income or credit to help support the mortgage approval. So why do you need your parents on the mortgage? A few reasons could be:
Your credit is to slim. This could mean you haven't have enough credit history
Your age (being to young)
Your income. You haven't worked at your job for long enough or you have part-time income.
With todays government mortgage rules (especially with banking institutions governed under OFSI and B-20 and B-21 rules), you can no longer use income from parents if they are "guarantors" and/or not living on the property, when applying for an insured mortgage with CMHC. Insured meaning you have 5-20% down payment.
Genworth Insurer Rule: "Guarantor income. If the guarantor occupies the property, the income will be considered for qualification purposes provided the guarantor is a direct family member (mother, father, brother, sister, grandparent, child or legal guardian). If the guarantor does not reside in the property, will consider income for the GDS/TDS calculation provided the guarantor is a direct family member and resides in the region where the property is located"
CMHC Insurer Rule: "A guarantor’s income must not be used in GDS/TDS ratios “unless the guarantor…occupies the home and is the spouse or common-law partner of the borrower.”
...then their are the lender rules and exceptions.
Here is where the challenges lie:
If your parents currently have a mortgage that is insurered with CMHC. CMHC will only allow ONE mortgage per family now. If your parents are on your mortgage, you will need to ensure that you are using a lender that will place your mortgage with Genworth or Canada Guaranty
Depending on the lender, they may request 10% down. Another reason to use a broker, not all lenders will need 10% down.
Parents have to disclose all their debts on your mortgage application and can impact them with their goals. Maybe your parents are considering buying a new vehicle, boat, retirement home or other loan in the next 5 years. Another mortgage payment will make qualifying for their loans more difficult.
If you're a first-time homebuyer and you have parents on as co-signers, ensure that the lawyer registers your mortgage correctly with land titles office, or you will have to pay property transfer taxes. First time buyers are exempt from property transfer taxes for purchases up to $475,000.
Parents are not mortgage experts. They are parents with good intentions. I too am a parent. Take their opinions and advise to heart, but seek out an experienced mortgage expert. My dad frankly is one of the worst money people I know and yet is always giving me advice that he thinks is correct.
I hear this to often from parents:
I have a great relationship with my banker, they will get it done.
I have a huge amount of money invested with my banks, they will make exceptions
I have been with my bank for 20 years, so they always give me loans.
I got a great rate at my bank, so you should too.
These are MYTHS. Banks must follow the same basic mortgage underwriting rules as mortgage brokers. They cannot make any more exceptions for your application as your parents - PERIOD. Likely they might even more more limited than a broker. Don't get lured in with false hope. Mortgages are vastly complicated and differ with each bank, credit union and other lenders.
I use strategic mortgage planning solutions that keep parents from putting themselves at risk and making you 100% in control of your mortgage. Planning is KEY!
Mortgage Brokers are the SMART choice for TODAY'S Homebuyer. We are FREE, Licensed with Ministry of Finance and FICOM.