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A Mortgage Co-Signer or Guarantor…Which Do You Need?

A Mortgage Co-Signer or Guarantor…Which Do You Need?

couple with co-signers in new home

couple with co-signers in new home

Buying a house in Canada can be tough for first-time buyers. It’s not just about saving money for a down payment – you also need a mortgage to afford a home because of high prices and extra costs. Traditional mortgage loans are harder to get, so some people might need to look for different strategies that will help them to get approved for the mortgage they want.

If you’re having trouble getting a mortgage loan, two good options to look at are using a guarantor or co-signer on your mortgage. But, how do you choose the person who’ll take on this huge responsibility with you? And, how do you know if you need a co-signer or a guarantor? It’s not a responsibility to be taken lightly so I’ve created this quick guide to help you choose who to ask for a helping hand with your mortgage and which option to follow through with.

What Is A Co-Signer On A Mortgage?

When you have a co-signer on your mortgage, they become a co-owner of the property, listed as a titleholder. This means they share ownership of the home with you. Since they are legally registered as an owner, they are responsible for mortgage payments. If you miss a payment, your co-signer has to cover it to prevent foreclosure.

Just like the main applicant, a co-signer must sign all legal documents related to the property. The only way to remove a co-signer from the property title and mortgage is if the main applicant can qualify for the mortgage independently later on. However, it’s essential to note that removing a co-signer involves paying legal fees for the process.

How Do You Choose a Co-Signer?

Technically, anyone can agree to be a co-signer. They don’t have to be a family member or relative. If you choose, your co-signer could be your best friend, your neighbour, or even your dentist. However, it’s usually your parents, siblings, or other close relatives since co-signing can be risky financially.

To be approved for a mortgage loan with a co-signer, your co-signer will have to meet certain criteria. Specifically, they must have…

  • Excellent credit history. Generally, co-signers should have a credit score in the 700s or higher. It’s a good idea to get credit reports for both of you ahead of time so you know what to expect.
  • Stable Income – they must be able to demonstrate that they can afford to make the mortgage payments if they can’t. In other words, your co-signer’s debt-to-income ratio needs to be within acceptable limits
  • Proof of employment or other reliable financial records –  your co-signer needs to prove that they are capable of covering the mortgage payments if necessary.

One thing to note: if your choice is someone who would benefit financially from the mortgage loan being approved, they can NOT be your co-signer.

What Is A Guarantor On A Mortgage?

A guarantor financially requires a special kind of mortgage where someone else signs the loan agreement with you. Unlike a co-signer, who shares responsibility for repaying the debt, a guarantor only agrees to pay if you can’t.

It’s important to know the difference between a guarantor and a co-signer. Unlike a co-signer, a guarantor is not listed on the property’s title and doesn’t have property rights.

Opting for a guarantor on your mortgage provides extra security for the mortgage lender. It gives your lender additional options if there’s an issue, reducing risk and the less risk, the easier it is for you to buy a home. Still, it’s crucial to compare different mortgage options to ensure the terms match your unique situation and align with your long-term financial goals.

How Do You Choose a Guarantor?

Lenders have clear rules about who can serve as a guarantor on a mortgage. Generally, it’s advisable to choose a guarantor who is financially responsible and trustworthy. However, not everyone qualifies to be a guarantor. While many guarantors are typically family members, close friends, or partners, lenders have specific eligibility criteria that must be met. Specifically, the person needs to have…

  • A Good Credit Score: To be a guarantor, most lenders require a strong credit history. A credit score of 650 or higher with minimal or no delinquencies is typically considered favourable.
  • Financial Stability: Guarantors should demonstrate a consistent and reliable income or possess the financial assets to support mortgage repayment in case of default.
  • Residency Status: Generally, guarantors should either own their home or have well-established residency in Canada.
  • Age Requirement: Guarantors must be at least 18 years old, verified by a government-issued ID such as a driver’s license or passport.

Is It A Good Idea To Become Someone’s Co-Signer Or Guarantor?

If you’re thinking about becoming a guarantor or co-signer, you should carefully consider all associated risks. While it might appear that you and the primary borrower share the loan responsibility and property ownership equally, in the eyes of the lender, both parties are viewed as 100% accountable for payments.

Don’t forget that being a guarantor or co-signer has repercussions on your overall borrowing capacity, potentially impacting future plans. Additionally, supporting someone else’s mortgage can significantly affect your credit and make you more vulnerable to higher interest rates, and the inability to qualify for your own mortgage later on, if you want to buy additional property on your own.

The key difference between a guarantor and a co-signer lies in title ownership – a co-signer holds the title, while a guarantor does not. Despite this difference, both individuals bear responsibility for ensuring timely mortgage payments to the lender and have to sign the mortgage papers.

Before You Decide, Give Me A Call

Whether you’re considering using a co-signer or guarantor to qualify for a mortgage, or you’re thinking of taking on this responsibility, it’s a good idea to know all the ins and outs as to how it works, what it entails, and how the paperwork gets filed. As an experienced mortgage broker, I can help you find lenders who are willing to approve these options on their mortgage loans and I’ll search out the best terms and interest rates to suit your needs at the same time.

To get started, schedule a virtual consultation with me at this link or give me a call at 705-315-0516. We can discuss all the options, the requirements, and look at the numbers that will get you approved to buy your first home!

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