If you’re ready to buy your first home but need help with financing, one option is to ask someone to co-sign the mortgage. Turning to a third party may not be the plan you imagined when you dreamed of owning a home, but higher interest rates and rising housing prices have made it harder for many Canadians to qualify on their own. The good news: a co-signer does not have to live with you. This article explains how co-signing works and how it can be combined with government programs like the first home savings account (FHSA) to help you reach homeownership.
What is the minimum down payment in Canada?
The size of your down payment is one of the most important factors in your ability to buy a home. A down payment is the portion of the purchase price you pay up front; it reduces the amount you need to borrow. The larger the down payment, the smaller your mortgage, the less interest you’ll pay over time, and in many cases the more competitive your offer will be.
There’s no upper limit on how much you can put down, but Canada sets minimum down payments based on the purchase price:
- For homes priced at $500,000 or less, the minimum down payment is 5% of the purchase price.
- For homes between $500,000 and $999,999, the minimum down payment is 5% of the first $500,000 plus 10% of the portion above $500,000.
- For homes priced at $1 million or more, the minimum down payment is 20%.
If your down payment is under 20%, you must obtain mortgage loan insurance (also called mortgage default insurance), except for homes that cost $1 million or more, where this insurance is not available.
How does an FHSA work?
The first home savings account (FHSA) is a registered account introduced in April 2023 to help first-time buyers save for a down payment. You can contribute up to $8,000 per year, to a $40,000 lifetime maximum, and keep the account open for up to 15 years. Investments and cash inside an FHSA grow tax-free, and withdrawals used for a qualifying first-home purchase are also tax-free. Many financial institutions offer FHSAs, and this account can be combined with other eligible programs if you meet the rules for each.
What if you can’t make a 20% down payment?
Mortgage loan insurance can significantly increase the cost of buying a home, typically adding about 0.6% to 4.5% of the mortgage principal depending on how much you put down. If you add the insurance premium to your mortgage instead of paying it upfront, you’ll also pay interest on that premium. For that reason, whenever possible it makes financial sense to aim for a 20% down payment and avoid mortgage insurance.
If you haven’t saved enough yet, consider these options:
- Delay your purchase or save more before buying so you can build a larger down payment (bear in mind home prices can continue to change).
- Reduce your price target—choose a condo or townhouse instead of a detached house, or look in a more affordable neighbourhood.
- Accept a gift or private loan from family to increase your down payment.
- Ask someone to co-sign the mortgage to help you qualify for a loan.
- Use RRSP savings under the Home Buyers’ Plan (HBP), which allows up to $35,000 per person ($70,000 for a couple) to be withdrawn for a first home and repaid over 15 years.
- Claim the Home Buyers’ Tax Credit if you qualify.
- Open and contribute to an FHSA to save in a tax-advantaged account for your down payment.
These options can be combined depending on your circumstances. For example, you might use an FHSA along with the HBP or the Home Buyers’ Tax Credit if you meet the eligibility conditions for each program.
How co-signing a mortgage works
Qualifying for a mortgage can be especially difficult if you are young, self-employed, or have a short credit history—even if you have savings and use available first-time buyer programs. If you can’t qualify for a mortgage on your own or can’t get a large enough loan, a family member or friend may agree to co-sign.
A co-signer differs from a co-borrower or joint owner. A co-signer does not appear on title and does not share ownership, but they guarantee the loan and are legally responsible for repaying it if the borrower defaults. Lenders view a co-signer as a way to reduce lending risk, and their involvement can help you qualify for a larger mortgage.
Because a co-signer accepts equal responsibility for the debt, it’s essential they understand the obligations and potential consequences. Co-signing is a long-term commitment that can affect their ability to get credit and may influence their credit score. Both parties should discuss details and consider professional advice before proceeding.
What’s the difference between co-signing and co-borrowing?
The key difference is ownership and intent: a co-borrower is on the mortgage and the property title, meaning they share ownership and responsibility for the debt. Commonly spouses or partners act as co-borrowers. A co-signer guarantees the loan without owning the property, accepting liability but not ownership rights.
Should you buy a house with your best friend?
Buying with family or friends can increase affordability because multiple incomes can support a larger mortgage. This arrangement can work well when everyone’s financial goals and expectations align, but it also introduces potential complications. Consider scenarios such as job loss, a change of plans, a roommate moving out, or the death of an owner. Clear agreements, legal advice and contingency plans are essential before entering into joint ownership with friends or family.
Explore different ways to buy your first home
There’s no single route to homeownership in today’s market. First-time buyers combine many tools—FHSAs, RRSP withdrawals, tax credits, gifts, co-signers and co-borrowers—to make a purchase feasible. Whatever path you choose, make sure the arrangement fits your long-term financial goals and that all parties understand their responsibilities. And remember, holding the keys to your first home is a satisfying milestone worth planning for carefully.
More about real estate:
- How first-time home buyers can use an FHSA to save for a down payment
- Mortgage payment calculator
- Where to Buy Real Estate in Canada 2023
- The Canadian mortgage stress test, explained
- Mortgage renewal calculator
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