Mortgage Co-Signer

Lenders, in cases that involve potential borrowers who may have questionable income, self-employment, poor credit or insufficient employment history, will prefer to structure a mortgage that includes a mortgage co-signer or mortgage guarantor.  Basically, the bank or lender wants something concrete in place to ensure that if a borrower is having issues making mortgage payments, then as many people as possible are responsible for the mortgage payments.

There is a difference in meaning between a mortgage co-signer and a mortgage guarantor.  In addition, there is a significant difference in the responsibilities and rights between co-signers and guarantors. 

A mortgage co-signer is actually an owner of the property and is registered on the land title.  The mortgage co-signer is also responsible for the payments of the mortgage, even though in most cases, they will not be making payments.   Co-signers in most cases are needed in order to support a mortgage application which requires additional income.  Co-signers for mortgages can be removed at a future time when a mortgage borrower is able to qualify for the mortgage on his or her own.  In cases where a co-signer is removed, there are legal fees involved, as there is an underlying change on the title of the property.

Alternatively, a mortgage guarantor is not on the title of the house or property and has no claim on the property.  A mortgage guarantor simply guarantees that payments will be made if the borrower does not fulfil the mortgage obligations and payments.

Lenders usually ask for a mortgage guarantor when a purchaser qualifies for the mortgage loan from an income perspective; however, the person possibly has credit issues or a lower than desired credit score.   Guarantors are responsible for the mortgage payments if the original borrower defaults on payments.  Mortgage guarantors themselves undergo a screening process from the lender.  Lenders will look at the guarantor’s credit score and credit rating, income and net worth statement.  In most cases, guarantors are family members such as parents, as in cases involving a mortgage co-signer or mortgage guarantor for younger individuals or children. 

Individuals who are guarantors can remain as the mortgage guarantor for numerous years.  These individuals need to consider the personal consequences of such agreements and commitments.  Acting as a personal guarantee can affect a person’s ability to obtain future financing and credit.  If an individual is contemplating borrowing funds in the future to purchase a new car, or an investment property or even a recreational item such as a boat, acting as a guarantee can affect an individual’s chances of securing additional loans. 

It is really important that both mortgage co-signers and mortgage guarantors review all documents prior to signing a mortgage agreement.  Mortgage co-signers and mortgage guarantors often seek advice from experienced law professionals. 

Borrowers who require a mortgage co-signer or mortgage guarantor in most cases are able to handle a mortgage and the associated payments on their own; it is simply a matter of banks and lenders seeking additional protection in the event of something negative occurring.  Just because one lender is requesting a mortgage co-signer or mortgage guarantor, does not mean another lender will require one as well.   

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April 27, 2017

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