14 Dec

Would a Co-Signer Enable You to Qualify for a Mortgage?


Posted by: Kelly Hudson

There seems to be some confusion about what it means to co-sign on a mortgage… and any time there is confusion about mortgages, it’s time to chat with Kelly Hudson, your trusted mortgage expert!!

Thanks to tighter mortgage qualification rules and higher-priced real estate – particularly in the greater Vancouver and Toronto areas – it is not easy to qualify for a mortgage on your own merits.

Let’s take a look at why you would want to have someone co-sign your mortgage and what you need to know before, during, and after the co-signing process.

The ‘stress test’ has been especially “stressful” for borrowers.  As of Jan. 1, 2018, all homebuyers need to qualify at the rate negotiated for their mortgage contract PLUS 2% OR the government posted rate which varies (currently 4.79%), which ever is higher.

If you have less than 20% down payment, you must purchase Mortgage Default Insurance and qualify at 4.79%.  The stress test has decreased home buyer’s affordability by about 20%.

In the wise words of Mom’s & Dad’s of Canada… “if you can’t afford to buy a home now, then WAIT until you can!!”

BUT wait… in some housing markets (Toronto & Vancouver), waiting it out could mean missing out, depending on how quickly property values are appreciating in the area.

If you can’t qualify for a mortgage with your current provable income (supported by 2 years of tax returns and a letter of employment) along with solid credit, your lender’s going to ask for a co-signer.

In order to give borrowers the best mortgage rates, Lenders want the best borrowers!! They want someone who will pay their mortgage on time as promised with no hassles.

Co-sign vs Guarantor 

Short version:  The main difference between a guarantor and a co-signer is that the co-signer is a titleholder and a guarantor is not. However, both of these individuals are responsible for mortgage payments being made to the lender.

  1. Someone can co-sign your mortgage and become a co-borrower, the same as a spouse or anyone else who you are actually buying the home with. It’s basically adding the support of another person’s credit history and income to those initially on the application. The co-signer will be put on the title of the home and lenders will consider them equally responsible for the debt should the mortgage go into default.
  2. Another option is a guarantor. If a co-signer decides to become a guarantor, then they’re backing the loan and essentially vouching for the person getting the loan that they’re going to be good for it. The guarantor is going to be responsible for the loan should the borrower go into default.

Most lenders prefer a co-signer going on title.

More than one person can co-sign a mortgage and anyone can do so, although it’s typically the parent(s) or a close relative of a borrower who steps up and is willing to put their neck, income, and credit bureau on the line.

Ultimately, if the lender is satisfied that all parties meet the qualification requirements and can lessen the risk of their investment, they’re likely to approve your mortgage.

Before signing on the dotted line 

Short Version: A co-signer, in essence, co-owns the home with the individual living in it and paying the mortgage. A co-signer must sign all the mortgage documents and their name will appear on the title of the property. When you co-sign on a mortgage, you become just as responsible for the mortgage loan as the primary borrower — and you can suffer serious consequences if they make late payments or default.

Anyone that is willing to co-sign a mortgage must be fully vetted, just like the primary applicant. They will have to provide all the same documentation as the primary applicant. Being a co-signer makes you legally responsible for the mortgage, exactly the same as the primary applicant.

Please note:  as a Co-signer your future borrowing plans will be affected

  • Since the mortgage will also appear on your credit report, this additional debt can make it tougher for you to qualify for additional credit.

If you dreamed of one day owning a vacation home, just know that a lender will have to consider your co-signed mortgage as part of your overall debt-to-income ratio

You are allowing your name and all your information to be used in the process of a mortgage, which is going to affect your ability to borrow anything in the future.

If someone is a guarantor, then things can become even trickier as the guarantor isn’t on title to the home. That means that even though they are on the mortgage, they have no legal right to the home itself. If anything happens to the original borrower, where they die, or something happens, they’re not on the title of that property but they’ve signed up for the loan. The Guarantor doesn’t have a lot of control which can be a scary thing.

In my opinion, it’s much better for a co-signer to be a co-borrower on the property, where you can actually be on title to the property and enjoy all of the legal rights afforded to you.

The Responsibilities of Being a Co-signer

Co-signing can really help someone out, but it’s also a big responsibility. When you co-sign for someone, you’re putting your name and credit on the line as security for the loan/mortgage.

If the person you co-sign for misses a payment, the lender or other creditor can come to you to get the money. Any late mortgage payments would also show up on your credit report, which could impact your own mortgage qualification in the future.

Because co-signing a loan has the potential to affect both your credit and finances, it’s extremely important to make sure you’re comfortable with the person you’re co-signing for. You both need to know what you’re getting into. I recommend Independent Legal Advice between all co-borrowers.

Co-signing is NOT a life sentence. 

Just because you need a co-signer to get a mortgage does not mean that you will always need a co-signer.

In fact, as soon as you are able to income/credit qualify without your co-signer – you can ask your lender to remove the co-signer from title. It is a legal procedure so there will be a small cost associated with the process, but doing so will remove the co-signer from your mortgage loan and release them from the responsibility of your mortgage.

Removing a co-signer technically counts as changing the mortgage, so you need to ensure that the lender you chose doesn’t consider removing a co-signer as breaking your mortgage.  There could be large penalties associated with doing so. For more information, check out my BLOG Mortgage Penalties – Ouch… How Much??

Co-signing is an option that could help a lot of people buy a home, especially first-time home buyers who are typically starting their career and building their credit bureau.

A final mortgage tip: a couple of alternatives to co-signing that could help someone out:

  • providing gift funds for a down payment
  • paying off someone debt, giving them more funds to pay the mortgage

Are you considering at buying a home?

As you can tell there is lots to discuss, let’s have a chat and find a mortgage that works for you and not the bank.

Kelly Hudson
Mortgage Expert
DLC – Canadian Mortgage Experts
Mobile: 604-312-5009

17 Oct

7 Tips for Buying Your First Home in BC

First Time Home Buyer

Posted by: Kelly Hudson

House in the Palm of HandAs a licensed Mortgage Broker, I am often asked “what do I need to know when buying my first home in BC?”

Everyone has their own aims and objects when buying their first home. As a Mortgage Broker, I specialize in making sure your financing is in order to facilitate your dreams of owning a home.

Buying your first home is very exciting, but it can easily be overwhelming. Being prepared is the first step. The decision to purchase your first home can be a huge, life-changing event and you need to know exactly what you are getting into.

To get you prepared with the knowledge you need, here are my 7 tips to consider when you buy your first home in BC.

1.  Strengthen your credit rating

It’s pretty simple: the higher your credit score, the lower your mortgage rate will be.

Spend the time now to improve your credit. Check your credit report. Many credit reports have errors, so you need to ensure that your credit bureau is current and correct.

ALWAYS pay every single one of your bills on time. Set up automatic payments if you have had any late payments over the last couple of years.

Stop applying for any new credit a year before you are considering buying and continue until you sign the closing papers on your home. Spend only 30% of credit limits on credit cards.

Solving the Puzzle – 5 factors used in determining your Credit Score

8 Credit Rules You Need to Know, Before You Buy a Home

2.  Find a Mortgage Broker and figure out how much you can afford to spend

The home buyer’s mantra: Get a home that’s financially comfortable.

Contact me, your Mortgage Professional. I work with you up to a year in advance to analyze your situation, and tell you how much mortgage and monthly payments you can afford.

Lenders like to see that you spend a maximum

  1. 32-39% of your Gross income on mortgage payments, maintenance fees (if applicable), heat & property taxes
  2. 38-44% of your Gross Income on all debts
    • Including #1 above PLUS loans, credit cards, additional financing etc.

1 year+ prior to going home shopping, calculate the mortgage payment for the home in your intended price range, along with the increased expenses (such as taxes, insurance and utilities). Then bank the difference between the home payments and what you’re paying now. Not only will that simulate ownership, it also helps you save for your down payment!

When you are ready to start shopping for your home, as your Mortgage Broker, I gather all your financial documentation that the lender requires, in order to figure out much you can afford to spend. Then I work with you to get a preapproval and lock in a low interest rate to protect you in case rates rise between now and the time you by your new home.

What is the difference between a Mortgage Broker & a Mortgage Specialist (hint – specialists work for the bank)!!

3.  How long will you live in your new home?

The transaction costs of buying and selling a house are substantial including: real estate fees, legal fees, Property Transfer Tax, selling in a down market, moving, etc.

If you don’t plan to live in your new home for at least 3-5 years, you may not gain enough equity to make selling worthwhile.

Short-term home ownership can be a pretty expensive proposition. If that is the case, holding off on purchasing could be your best option.

4.  How much house you need?

Buying a cheaper, smaller home might sound like a good place to start, but could end up costing you more if you need to move due to changes in your lifestyle, including a growing family. Then again, buying more house than you currently need will cost you more with higher mortgage payments, higher maintenance, energy and tax costs.

Prioritize your housing wish list. They say that the 3 most important things to think about when buying are home are location, location, location. In Greater Vancouver your first choice for location i.e. Kitsilano or Yaletown may not be within your means. You also need to think about how the new home space will be used and whether it will fit your lifestyle now and in the future.

5.  Build a savings account

Start now to build a healthy savings account. To avoid paying CMHC Mortgage Default Insurance you need to prove you have a 20% down payment.

Building your savings account, over and above the money you will require for the down payment and closing costs. Lenders want to see that you’re not living paycheck to paycheck. If you have three to five months’ worth of mortgage payments in your savings, that makes you a much better loan candidate.

Everything You Wanted to Know about Mortgage Default Insurance

6.  Remember closing costs.

While you’re saving your down payment, you need to save for closing costs too. They’re typically 1% to 3% of the purchase price and due on the completion date.

In BC you need to also pay Property Transfer Tax (PPT). The amount of tax you pay is based on the fair market value of the land and improvements (e.g. buildings) on the date of registration unless you purchase a pre-sold strata unit. The tax is charged at a rate of 1% for the first $200,000 and 2% for the portion of the fair market value that is greater than $200,000.  3% on the portion over $2,000,000 and if the property is residential, a further 2% on the portion greater than $3,000,000

Don’t Forget the Closing Costs When You Purchase a Home

7.  Shop for a Realtor that has your best interests in mind

Interview at least three Realtors. Get referrals from people you trust who have recently bought or sold, including me, your mortgage broker. I work with a lot of realtors, some of whom are outstanding in their field. Once you’ve decided which Realtor is the best fit for you, they can help you focus your search to find your perfect home. There is no cost for the Realtor for the home buyer since the home seller pays the commission.

Besides the 7 tips I’ve listed above, there are many other things you should need to be aware of prior to buying your first home.

Mortgages are complicated… BUT they don’t have to be!  Engage an expert!

Kelly Hudson
Mortgage Expert
Dominion Lending Centres – Canadian Mortgage Experts
Mobile 604-312-5009


4 Oct

Mortgage Insurance 101


Posted by: Kelly Hudson

Mortgage insurance… sounds simple doesn’t it??

For a first-time home buyer, the types of insurance surrounding a mortgage can be confusing, so it’s important to know what insurance covers what.

There are 3 main types of insurance to know about when buying a home.

Mortgage Default Insurance – If you put less than 20% down on a home you are buying, Government rules are you must pay for Mortgage Default Insurance which covers the lender should you default on your mortgage payments.

There are three mortgage default insurers in Canada – Canadian Mortgage & Housing Corp. (CMHC), Genworth or Canada Guaranty) The purchase of this insurance solely benefits the bank/lender.

For more information check out Everything You Wanted to Know about Mortgage Default Insurance

Mortgage Insurance and/or Life Insurance

You’ve just made the biggest purchase of your life: a new home for you and your family.

  • What’s the best way to protect your investment if you die?

Insurance is the answer. But what kind: mortgage insurance or life insurance? 

There are important differences between the two that we’ll examine.

Mortgage Insurance Life Insurance
Tends to be quicker to process. Can take 30-90 days to put into place.
Can be easier to qualify for. With individual owned insurance the medical underwriting is completed up front, so you know what is covered when your policy is approved.
Decreasing benefit – the amount of coverage with mortgage insurance decreases as you pay down the balance each month, while the monthly insurance payments remain the same. If you get coverage for $500K, it stays at $500K until you decide to change it, or your term expires.

Beneficiary is the lender/bank who holds your mortgage. You can designate the beneficiary/beneficiaries.
Mortgage insurance is attached to the outstanding balance on your mortgage. Life insurance is attached to you rather that your debt.
Typically, your mortgage insurance policy pays off the current balance on your mortgage to your lender/bank. The beneficiary(ies) decide what to do with the insurance.  Funds can be used to pay off the mortgage or any other bills (funeral, hospital/home care expenses, living expenses, education etc.).  It’s your money, and you can decide how to use it.
You can cancel anytime i.e. you find an insurance product that suits you better. You can cancel anytime i.e. you find an insurance product that suits you better.
Portability – mortgage broker sold Mortgage Insurance policies are portable. Which means that if you switch lenders or buy a new property, you will be able to transfer your Mortgage Life Insurance to a new property. Make sure you ask your Insurance Provider if the insurance they are recommending is portable.·         Take note that when the bank offers you Mortgage Insurance you will not likely be able to transfer your Mortgage Life Insurance to a new lender or property thereby limiting your future financing options. Completely portable.  Doesn’t matter if you buy a different home or switch lenders/banks, life insurance follows you not your property.

Please note:  Mortgage/Life Insurance is not mandatory to qualify for a mortgage.

You have made the biggest purchase of your life… how do you protect yourself and your family?  Many people say they have life insurance through their work, but is it enough?

  • The question you should be asking is – do you currently have enough life insurance in place right now, equal to your mortgage amount?

Top Benefits of purchasing Mortgage/Life Insurance

  1. Peace of Mind – creates a sense of security that your loved ones will be taken care of if you pass on.
  2. Mortgage Can be Paid Off – whereby any other policies that are held will be able to assist with other needs.
  3. Family can Stay in their Home – if there is the unfortunate life event that is the death of the Mortgage/Life Insurance policy holder, the mortgage can be paid off which will allow the family to stay in their home and not become displaced, causing additional anguish.
  4. The Younger you are, the Less Expensive – Which means that insurance is extremely affordable for a young, and likely, first time home buyer.
  5. Good Health = Coverage for Unexpected Illness Later on – After illness strikes, it is more difficult to acquire life insurance.

Mortgage/Life Insurance is an option that anyone with a mortgage should consider. Ask me about a referral for reputable and credible insurance.

While we’re discussing insurance, there are other types of insurance you need to consider as well…

  • Fire insurance – most lenders will want to see that you have fire insurance in place, prior to funding your mortgage to “protect” their investment.

Additional insurance options:

  • Disability insurance
  • Personal content insurance

Mortgages are complicated… BUT they don’t have to be!  You need to protect your investment by engaging an expert.

Give me a call and let’s discuss a mortgage that works for you (not the bank)!

Kelly Hudson
Mortgage Broker
DLC – Canadian Mortgage Experts
Mobile: 604-312-5009

12 Jul

What is the difference between a Mortgage Broker & a Mortgage Specialist (hint – specialists work for the bank)!!

Mortgage Broker

Posted by: Kelly Hudson

With the importance of real estate in Canada, it is vital to understand how the various professionals in the sector operate when buying a home.

Sooooooo… what is the difference between a Mortgage Specialist & a Mortgage Broker?

On the surface they sound the same

  • They both arrange mortgages
  • They both can offer advice and help you select a mortgage, right?

WRONG!!!   There are many differences… Let’s check some of them out!

  • A Mortgage Broker works for you!  Their role is to act as a link between you and the lenders so that you do not have to spend your valuable time learning about mortgages and shopping around for the perfect mortgage.  Mortgage brokers do the legwork and negotiate on your behalf for lenders. They are your point of contact for everything related to your financing your home.
    • Bank specialists are employed and paid by the bank and work on the bank’s behalf.
  • A Mortgage Broker can work with many different lenders across Canada, rather than working for one financial institution. Therefore, Mortgage Brokers can offer you more choices with competitive rates and terms including: Big banks, Credit Unions, Trust Companies, Monoline Lenders (broker only banks), private lenders.
    • Usually Mortgage Specialists only have access to their lender’s products. In a typical situation, homeowners could end up with a higher interest rate than other institutions. This occurs because the homeowner must negotiate for themselves and Mortgage Specialists are usually paid according to the rate they sell you.
  • A Broker must successfully complete a Provincially regulated Mortgage Broker course and exam. (In BC, Mortgage Brokers must be licensed by FICOM)  They continue to maintain their good status to keep that license by taking professional development education courses
    • Bank specialists are not licensed and require no formal training.   There are no standards for educational requirements (although most Lenders do provide some in-house training).   
  • Because Mortgage Brokers don’t work for a specific lender, you get impartial advice about a variety of lenders
    • A bank specialist can only offer their own institutions products, good or bad.
    • Specialists don’t have access to other lenders, so they won’t recommend another lender’s product offerings.
  • Mortgage Brokers use their knowledge and experience to negotiate the best possible terms and rates for you from a variety of lenders, based on the best fit for your situation.
    • When you see a bank specialist, the mortgage negotiating is typically left up to you.
    • Will the bank specialist negotiate on your behalf or the banks?
  • For conventional financing, the services of a mortgager broker are generally FREE to you. If there is a cost, you will be advised of those costs up front. Brokers get a finder’s fee from the lender once they place your mortgage.  Therefore, brokers are motivated to get the best terms and rates for their clients.
    • Bank specialists are paid by the bank
    • Some banks offer bonuses if specialist gets their client to pay higher interest rates or sign up for other bank services.
  • Mortgage Broker’s work on a referral basis and are self employed. Most of their business is done through word of mouth referrals, therefore a Mortgage Broker is motivated to ensure their clients are extremely happy and satisfied to keep their business growing.
    • A bank specialist is generally an employee of the bank, generating business through the bank’s existing customers.
    • Most Mortgage Brokers are available for appointments outside banking hours (nights, weekends) at their client’s convenience.
      • Bank specialists are generally only available during regular banking hours.
  • Mortgage Brokers are focused on your mortgage
      • Specialists are trained and rewarded on cross selling.  Some will push you to consolidate all your banking services with them when getting a mortgage (credit cards, insurance, RRSP, lines of credit, etc.)

Coffee Smiling Mar2016Would you ask Tim Hortons who makes the best coffee and expect them to say Starbucks? Not likely…  So why would you ask a Mortgage Specialist who works for a bank, to tell you which Lender has the best mortgage product for your situation?

For additional information check out my BLOG Top 10 Reasons to Use an Independent Mortgage Broker

Mortgages are confusing… Give me a call and let’s discuss a mortgage that works for you (not the bank)!

Kelly Hudson
Mortgage Broker
DLC – Canadian Mortgage Experts
Mobile: 604-312-5009

11 Apr

History of Mortgage Changes up to April 2018


Posted by: Kelly Hudson

Every time you turn around, seems like there is another change to qualifying for a mortgage. Let’s walk through some of the mortgage changes over the years…

History of mortgages in BC

Before 2007-2008

During this time, lending and mortgages policies were much more lenient! 100% financing was available, 40-year amortizations, cash back mortgages, 95% refinancing, 5% down payment required for rental properties.  You could qualify for Fixed and Variable term mortgages at the discounted contract rate. There was NO limit for your Gross Debt Servicing (GDS) if your credit was strong enough. Lenders had relaxed lending guidelines when debt servicing secured and unsecured lines of credits and heating costs for non-subject and subject properties.

The financial crisis of 2007–2008, is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s. It began in 2007 with a crisis in the subprime mortgage market in the United States and developed into a full-blown international banking crisis.

Due to the financial crisis, the Canadian government got involved, therefore many new mortgage rules have been implemented over the last 10 years.

July 2008
We saw the elimination of 100% financing, the decrease of amortizations from 40 to 35 years.  The introduction of minimum required credit scores. Total Debt Servicing (TDS) could be maxed out to 45%.

April 2010
Variable Rate Mortgages, along with 1, 2, 3 & 4 year Fixed Term Mortgages now need to be qualified at the 5-year Bank of Canada’s posted rate. If you had a 5 year Fixed mortgage, you could qualify at the discounted contract rate.

Investments properties, which previously needed only 5% down payment, now require a minimum 20% down payment. Introduction of new guidelines which factored in rental income, property taxes and heat for affordability.

March 2011
The 35-year amortization was dropped to 30 years for conventional mortgages. Refinancing dropped to 85% from 90% and the elimination of mortgage insurance on secured lines of credit.

July 2012
30-year amortizations dropped again to 25 years for High Ratio Mortgages (less than 20% down payment). Refinancing also dropped down from 85% to the current 80%. Tougher guidelines within stated income mortgage products making financing for the Business for Self more challenging.  The disappearance of true equity lending. The largest changes were:
• Ban mortgage insurance on any million-dollar homes
– 20% minimum requirement for down payment for homes over $1m
• Elimination of cash back mortgages
• Federal guidelines introduce a minimum 5% down payment on owner occupied homes

February 2014
Increase in mortgage default insurance premiums. *
  • By law, anyone putting down less than 20% of the purchase price of a home in Canada must pay mortgage insurance, even though the homeowners themselves don’t benefit from that coverage. Rather, it’s a fee, borrowers pay so, if they default on loans, their lenders aren’t on the hook, instead, an insurance payout would cover any defaulted loans.

February 2016
Minimum down payment rules changed to:
• Up to $500,000 – 5%
• Up to $1 million – 5% for the first $500,000 and 10% up to $999,999
• $1 million plus homes require 20% down payment (no mortgage insurance available)
• Exemption for BC’s Property Transfer Tax on NEW BUILDS regardless if one is a 1st time home buyer with a purchase price of $750,000 or less.
– BC Property Transfer Tax (PPT) arrived March 7, 1987, with Social Credit premier Bill Vander Zalm government’s first budget and it has survived every change of government since then.

July 2016
The introduction of the foreign buyer tax stating that an ADDITIONAL 15% Property Transfer Tax (only to Metro Vancouver) is applied for all non-residents or corporations that are not incorporated in Canada purchasing property.

October 17, 2016: Mortgage Stress testing
Mortgages with less than 20% down payment (requiring Mortgage Default Insurance) now have to qualify at Bank of Canada 5 year posted rate (currently 5.14%).

November 30, 2016: Monoline Lenders
Portfolio Insured mortgages (Monoline lenders) greater than 20% have new conditions with regulations requiring qualification at the Bank of Canada 5 year posted rate, maximum amortization of 25 years, max purchase price of $1 million and must be owner-occupied.

March 17, 2017
Increase in mortgage default insurance premiums.*

2018 April 2018What about 2018??

January 2018: The Office of the Superintendent of Financial Institutions (OSFI) announces Stress Testing for all mortgages, no more bundling and other restrictions
• If your mortgage is uninsured (greater than 20% down payment) you will now need to qualify at the greater of:
– the five-year benchmark rate published by the Bank of Canada (currently 5.14%)
– OR the contractual mortgage rate +2%
• Lenders will be required to enhance their Loan to Value (LTV) limits so that they will be responsive to risk. This means LTV’s will need to change as the housing market and economic environment change.
• Restrictions will be placed on lending arrangements that are designed to circumvent LTV limits. This means bundled mortgages will no longer be permitted.

*A bundled mortgage is when you have a primary mortgage and pair it with a second loan from an alternative lender. It is typically done when the borrower is unable to have the required down payment to meet a specific LTV.

February 2018 – Premier John Horgan’s NDP government took steps to dampen speculation with BC real estate by imposing a new speculation tax and increasing the foreign buyers tax to 20%.
• Both measures are aimed at slowing the flow of global capital (that critics say is driving up BC home prices) and extends beyond Metro Vancouver.
• Raising the foreign buyer tax from 15% to 20%. The higher tax now covers Victoria and Nanaimo land districts on Vancouver Island, the Fraser Valley, Kelowna and West Kelowna.
• The speculation tax, is intended to get tax from absentee investor homeowners who often declare little or no income tax in BC but are believed to have substantial global incomes. The tax will start at 0.5% of a home’s assessed value for the 2018 tax year and increase to 2% in 2019.

BOTTOM LINE: How can you keep up with all the mortgage changes?

The home buying industry has always been one of change, which has shifted and altered based on the economy and what is currently going on in Canada and BC.

Question marks Mar16To understand mortgages, you need to work with a mortgage broker!

Give me a call and let’s discuss a mortgage that works for you (not the bank)!

Kelly Hudson
Mortgage Expert
DLC – Canadian Mortgage Experts
Mobile: 604-312-5009