Agreeing to become the co-signer of a mortgage for a home you, yourself won’t live in, is a big step. It’s important to trust the person you’re supporting 100%, and you should be aware of the requirements, responsibilities, and risks that come with being a co-signer before signing on that dotted line. Talk to your mortgage broker to make sure this is a good idea ahead of taking action. It’s sort of like getting independent legal advice, to ensure you’ve got all the facts before agreeing to move ahead. It also helps to find a reputable lender that can give you a good rate, and who doesn’t hide details in the fine print just to push the deal ahead.
First, what exactly is a co-signer for a mortgage?
A co-signer is someone whose name is added to the mortgage along with the primary borrower if they fall short of getting approved for a mortgage on their own. A co-signer can help strengthen the mortgage application if it has weaknesses. And, in short, they agree to take responsibility for the loan if the primary borrower fails to make their mortgage payments.
Someone may need a mortgage co-signer if they don’t meet the lender’s criteria or don’t have a strong enough application on their own. It could be because they don’t have the greatest credit score (or no credit score), are self-employed (meaning they could have sporadic income in the eyes of the lender), or they are new to Canada and don’t have the documentation needed to be approved on their own. In these cases, a co-signer can help ease the concerns of the mortgage lender allowing the application to be given the stamp of approval.
What are the qualifications to become a co-signer?
To become a co-signer on a mortgage you must have the financial stability to prove to the lender that you can help assist the primary borrower if they fail to meet their monthly mortgage payments. In order to prove this to the lender, you will need to include your income, credit history, and debt-to-income ratio alongside that of the primary borrower. That way the lender knows that they can rely on someone to assume the payments if the primary borrower isn’t able to make them for one reason or another.
What are the risks of becoming a mortgage co-signer?
If the primary mortgage borrower doesn’t cover their monthly mortgage payments, then the co-signer is responsible and must meet the financial obligations. Be sure that if you become a co-signer, you trust that person to reimburse you later, and are willing to pay their part if they experience financial difficulties. You must know that if they miss a payment it can affect your own debt-to-income ratio and may damage your credit score if you are now paying two mortgages, one on their behalf.
It’s also important to know that becoming a co-signer for a mortgage is a legally binding contract. So, make sure you request all copies of the paperwork and read all of the fine print to know your responsibilities ahead of signing off on the agreement. You should also ask for access to the mortgage account so you make sure the mortgage is paid every single month. With online access, you will be able to check that the primary borrower is paying their monthly fees regularly so you can spot any troubles early on. You can also look into insuring your mortgage in case of death so there is a plan in place if anything were to happen to that person or yourself.
Work with your mortgage broker or financial advisor to make sure co-signing is a smart option for you
If you have any hesitation about becoming a co-signer on a mortgage or feel like you’re being pressured, then it’s probably the wrong call for you. Financial stress can put a strain on your relationship with each other whether that be with the person asking you to co-sign or your partner, husband, or wife. Before you become a co-signer, I can’t stress enough that it is in your best interest to seek professional advice from a financial advisor or mortgage broker so that you thoroughly understand the risks, financial obligations, and responsibilities. To learn more, give me a call at (705) 315-0516. We can discuss if co-signing another’s mortgage is a sound decision for you, and what the right procedure is to help the primary borrower get approved for the mortgage they need. With many years of experience working as a mortgage broker here in Barrie, I can provide you with more options than banks can while explaining the pros and cons of each along the way. I’m really here to help in any way I can! Plus, it’s free to work with a mortgage broker so, it just makes sense.