Clients came to us and were putting 5% down payment on a house they wanted to purchase. Mr. had previous credit issues and had just started a new job (fortunately it was in the same line of work as his previous employment)
When putting 5% down on a purchase, this is considered a high-ratio mortgage to the lender. This type of mortgage not only goes thru the lender channels but the lender in turn sends this deal in to a mortgage insurer such as CMHC or Genworth. The insurer will “insure” this mortgage on behalf of the lender so that if the client defaults payment, the lender will be covered. There is a fee involved in this process which is added onto the amount of the mortgage and the borrower pays over the life of the mortgage. In this case the insurer requested that a co-applicant be added on due to the previous credit issued of the main applicant.
A co-applicant has to be a family member. In this case the brother was asked and able to go on title as well in what we refer to as a Co-Borrower Release product. In one year, perhaps two, we will review the file and submit the applicants updated info with projections that the credit is stronger.
Our clients are in their new happy home! NOTE: the co-applicant does not pay anything for the mortgage however if his brother were to default he would hold the brunt and have to pay the mortgage payments. Also, if the co-applicant is seeking any credit he must disclose that he is on title on this mortgage. In order to be a co-applicant you must know where you are at in your financial situation and that any upcoming situations don’t prevent you from getting the loan or credit you might need.