You’ve tried to get approved for a mortgage, but you didn’t get approved for the amount you were hoping for. What are your next steps? Well, firstly let me start by saying that you still have tons of options. It can be disheartening to hear that you haven’t been approved for the ideal amount. But there are ways you can improve your mortgage application to increase the amount you can get approved for.

You can try to save up a bigger down payment or work towards increasing your credit score, but this could be easier said than done. Of course, you will need to be able to fulfill these requirements on your mortgage application to secure a pre-approval. However, if you are set on buying a house but you’re struggling to get approved, one thing you could consider is getting a guarantor. But what is a guarantor and how will it help you get approved for a mortgage? This article will explain everything you need to know about guarantors and how they can offer you an opportunity to get approved for a mortgage.

What is a guarantor?

Simply put, a guarantor is someone who helps another person get credit on a mortgage. Being a guarantor means you ‘guarantee’ someone else’s mortgage by promising to repay their debt if they can’t afford to. Typically, the role is taken on by a parent, a grandparent, or an extremely close and trustworthy person with good-standing credit. A guarantor is essentially a safety net for lenders. If the person who is approved for the mortgage is unable to make payments, the guarantor will be responsible for that debt.

Wait a minute, this sounds a lot like being a co-signer. What’s the difference between a guarantor and a co-signer?

In some ways they are similar, but there are many key differences between a person being a co-signer and a guarantor on a mortgage:

• A co-signer appears on all mortgage documents: When someone is a co-signer on a mortgage, their name appears on everything, including the title of the home. When a person signs as a guarantor, their name does not appear on the title of the home.
• Co-signers legally own the property as much as the individual paying the mortgage: On the other hand, because guarantors don’t appear on the title, they don’t own the house at all.
• Co-signers have equal responsibility to the owner that payments are made: A co-signer on a mortgage will be held accountable for ensuring that the mortgage payments are made on time. A guarantor simply needs to guarantee that the mortgage payments will be made, even if the applicant defaults.

Now, how do you know which one you should choose? This mainly depends on your situation. It’s best to think of a co-signer as someone who co-owns the house with you. People typically use a co-signer when they don’t have the income to qualify for a mortgage on their own. A guarantor is also used to help the primary borrower. However, the primary borrower usually has the income to support the mortgage. But may have blemishes on their credit history that are preventing them from securing a mortgage on their own.

What are the benefits of a guarantor?

What’s great about being a guarantor is that there is a lower financial risk in comparison to being a co-signer. You don’t own the property, you’re just there as a safety net in case the primary borrower on the house is unable to make payments.

Guarantors are usually needed by first-time homebuyers who need a bit of a boost on their application. Whether it be that their income is too low, or their debt is too high, a guarantor can help level the playing field. It can also allow first-time buyers to get approved for a higher mortgage.

Another great thing about being a guarantor is that it offers a parent the opportunity to help their child buy a home without having to gift them money. Instead, they use their own equity or savings as insurance against any default in repayments on the loan. If the homeowner makes the payments on time, there is nothing you will need to do. Anything used as security will be returned to the guarantor once the guarantor arrangement is no longer necessary.

What are the downsides of a guarantor?

There are many great benefits to having a guarantor. You can secure a better rate and a higher mortgage loan with a guarantor. But there are some potential risks involved, similar to having a co-signer. Being a guarantor means that person is responsible for the unpaid debt if the primary signer on the mortgage is unable to make payments. In the event that this happens, the guarantor could be responsible for a lot of debt.

That is why it’s important that if anyone asks someone to be a guarantor on their mortgage loan, the potential guarantor needs to be 100% confident that they will make their payments. If they do not, it can pose a very big financial risk to them. Usually, it’s best to ask a family member or a close and trustworthy friend to be a guarantor on your mortgage if needed.

Is a guarantor your best option? Work with me today to learn more!

Everyone’s financial situation is different. In most cases, a guarantor is usually needed by first-time homebuyers who need a bit of reinforcement locking in a higher mortgage loan. Again, you do have lots of options. If you would like to learn more about the role of a guarantor and how they could help you secure a higher loan, then work with me, Darren Robinson, today! I can show you if a guarantor would improve your application and provide you with plenty of options to help you get approved for the mortgage you need. To get started, schedule a virtual meeting with me today by either applying online or giving me a call at 705-315-0516. Let’s make your dream of buying a home a reality!