Co-Signing a Mortgage - Becoming a Guarantor
When your Son, Daughter or Family friend wants to buy a house, there is often a speed bump preventing ownership of a new home. Often people need help from parents and others.
Usually the speed bump involves money and the bank requiring a Guarantor or a Co-Signer on the mortgage. Why might this happen:
Why do Banks ask for a Guarantor or Co-Signer
- Something negative on the credit record
- New immigrant, thus no credit record at all
- Self Employed person, thus bank sees more risk
- Need more down payment or income
- and more....
Due to the price of homes, many families find it difficult to afford a home without the help of parents or other family. In most cases people need either a larger down payment or need to mend their credit. Both take time and often the house is needed now...not later.
Lets look at this from the Banks perspective. When they lend hundreds of thousands to someone they need to be sure they'll get paid back by either the Mortgagee OR the Guarantor. In most cases the Guarantor is the government run CMHC, which insures your mortgage against default. In other cases, CMHC doesn't apply or you're unable to qualify without help.
Co-Signing on a Property
If someone is unable to qualify on their own, then a Co-Signer may be all they need. A Co-Signer is another person placed on Title for the property thus becoming a co-owner responsible for making payments. Their income and credit score is factored into the big picture to help qualify for the mortgage in both names. The co-owners can be 2-3 or more people including spouses, relatives, friends or any combination, but keep in mind, that removing someone from title requires legal fees.
The difference between Guarantor & Co-Signer
As a Guarantor, that person is NOT on title. They are merely promising to pay in case of default. Generally the lender will ask for a guarantor if the applicants credit is blemished or they have not established enough credit. The lender is asking for reassurance by having another person backup the mortgage.
To guarantee a mortgage, the bank will look at the guarantors Assets, their Debts, Income and a look for excellent credit with a beacon score in the 700's - 900's.
A good Guarantor will have:
- Assets - House, investments, cash
- Low debt - Someone who can carry their own debt and more if necessary
- Credit Score - Ideally above 800 beacon score with good payment histroy
There are other factors including legal and future considerations when deciding to become a guarantor and when determining who you might ask to co-sign. The bank will tell you half and the mortgage agent will make it happen, but ask for independent advice before you move forward..