You’re finally financially and emotionally ready to take the leap into homeownership. There’s just one problem – your credit rating isn’t quite there yet. For many younger and first-time home buyers, this is often the case. Although you may be fully able to financially afford your mortgage payment, your credit score rating may fall shy of the standard that’s needed to qualify for a mortgage on your own.
Does this mean game over for your dreams of home ownership? Not necessarily! You may be able to use a co-signer in order to qualify if you don’t qualify on your own. Here’s everything you need to know about mortgage co-signers.
What is a co-signer?
When you apply for a mortgage, your lender looks at a few different criteria including your credit score, income and past debt repayment history. If you don’t qualify for one reason or the other, a co-signer is a viable option. A co-signer is someone who demonstrates financial strength, typically through a strong credit rating, and agrees to add their name to your mortgage as a guarantor. This means that if you default on your mortgage payments, your co-signer is held responsible and will have to make the payments for you.
Why should I use a co-signer?
If you’re confident that you’ll be able to handle your mortgage payments, but have a lower credit score because of credit issues in the past, then a co-signer can be a good idea. Also, for anyone who has no credit rating – even though you may have a perfectly good income and a solid down-payment, lenders may be concerned about the risk because there’s no past evidence of your ability to pay off a loan. In this situation, it makes sense to utilize a mortgage co-signer, which will not only get you into the housing market, but also improve your credit worthiness as you pay down your mortgage independently.
Who can co-sign for me?
Anyone who can demonstrate that they have a relationship with you can usually act as a co-signer, as long as they can prove their strong credit rating and their ability to cover your mortgage (in addition to their own debts/mortgage) in case you default on your payments. A very common scenario is when parents co-sign for their children who may have low or no credit.
It’s important to know, however, that changes to mortgage insurance availability through the Canada Mortgage and Housing Corporation (CMHC) may disqualify some people. According to these changes, mortgage insurance will only be available to one property per borrower. That means that if you already have a mortgage and mortgage insurance, you may not be able to act as a co-signer for someone else.
What else should you know?
It’s important to remember that just because you are denied a mortgage from one lender, it doesn’t mean that you will be denied by every mortgage lender. The job of a mortgage broker is to help clients by shopping around and finding the best solution. In many cases, clients who have previously been disqualified by one lender are able to find success with another through working with a mortgage broker.
If you have questions about finding the right mortgage solution for you and your family, or to find out if using a mortgage co-signer is the right step to take, I can definitely help. As a professional, experienced mortgage broker in Barrie, I can work with you to find the best mortgage available. Your new home is out there waiting for you; let me help you get those keys! Connect with me today by calling 705-315-0516 and we’ll set up an opportunity to chat and explore your options.