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When might I need a co-signer on a mortgage application? 

When might I need a co-signer on a mortgage application? 

Two ladies smiling and putting paper into an envelopeAfter looking at houses and applying for a mortgage, there’s nothing more disappointing than having an application denied. If your application is rejected, it’s usually because you (and/or your spouse) did not meet all the lenders’ criteria, or, simply put, your application wasn’t strong enough. You may not even have a poor credit rating, it might simply be that you have no credit rating! Perhaps you just started a new job and this is your first big loan, or, maybe you are new to the country and don’t have access to the documentation needed here in Canada. However, a co-signer can potentially help boost your application and get you that home. So, don’t fret, you might not have to wait until your credit rating improves, or worse, give up altogether on your dream of becoming a new home owner! A co-signer is somewhat like a guarantor (whom you may have used in the past when renting an apartment), but in a much more formal capacity and with a lot more money at stake! It’s someone who will be equally responsible for your loan, and who agrees to cover your mortgage payments if you can’t.

Here’s a closer look at how co-signing works

First, you need to know that if your credit rating is extremely low, then few lenders will consider the mortgage application even with a co-signer; it’s just too risky for them. A co-signer is more typically used when someone’s credit rating is soooo close, but not quite strong enough to go it alone.

There are a couple of options for co-signers:

1)    The co-signer: This is when someone co-signs your mortgage and he/she/they become a co-owner – right along with you. Their name is also on the deed/title of the home. Although you are the primary applicant, they have the same legal stake in owing the home that you have, and they are responsible to pay back the debt in full if you don’t.

2)    The guarantor: A co-signer can agree to become just a guarantor, who will vouch for you and tell the lenders that you are responsible and will pay off your mortgage. However, the guarantor also must pay your mortgage if or when you can’t. A guarantor’s name does not go on the deed/title of your home.

It’s important to note that you may not need your co-signer (or guarantor) for the full period of time that you have your mortgage. If or when you have built up your credit rating high enough, you can request that the lender re-assess your application to remove the co-signer so that you can own your home all on your own.

Now for the tricky part…who to ask?

It’s a big deal to ask someone to be a co-signer, and it’s not a decision that you – or they – should take lightly.  A co-signer should have a solid credit rating and ideally, a steady income (but not necessarily a high income), as they often “fill in the blanks” where there are gaps or low scores on your application.  Co-signers need to know that they too have will have to fill out forms and share personal financial information as part of the process. Keep in mind that a co-signer can potentially be on the hook for hundreds of thousands of dollars, so the lender will want to be sure that the loan can be covered. Because it’s such a commitment, the people most often approved to be co-signers are parents or other close family members. Asking friends, neighbours or co-workers isn’t highly advisable unless you can show that you have a very strong relationship.

How to move forward and close the deal

There are still so many fine details to learn about co-signers and the application process though now that you understand the basics you’ll be able to decide whether or not you want to look at the possibility of having someone co-sign your loan. The mortgage world can be complicated at times, and as an experienced and qualified mortgage broker, I can help you navigate through this and the many other issues that can arise throughout the process. As your guide in the mortgage process, I can tell you straight up if a co-signer would work for you at this time, and why or why not. I can also help you with the co-signing/application process, and walk you through the steps required with the right information and solid advice. In fact, if you have any questions about securing a mortgage, renewals or refinancing, please give me a call at 705-315-0516. I am always here to help you better understand your options to get you closer to moving into that home you’ve always wanted.

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