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Co-signing for a mortgage is a big commitment. Whether you are the borrower who needs a co-signer or someone has asked you to co-sign for them in securing a mortgage approval, understanding what is involved is very important. Test your knowledge with our quick quiz;
- Do you know what a co-signer is?
A co-signer is an additional borrower put onto the mortgage application in order to add strength to the approval of the mortgage financing.
- Do you know why a co-signer is required?
If a borrower has weak credit or their income does not support the mortgage amount they have applied for, a co-signer may be requested. The idea being, the stronger the application, the more appealing it is for a potential lender to approve the financing.
- Can you have more than 1 co-signer?
You can have more than one co-signer on an application and an example of this is two parents co-signing for their child who is buying their first home. The purpose of a co-signer is to improve the odds of a mortgage approval so a weak borrower would not make a good co-signer in this situation.
- Does the co-signer have to go on the title of the property they are co-signing on?
In addition to a co-signer going on the mortgage (the debt) they will also go on the accompanying property land title (the asset).
- What are the lenders looking for in a co-signer?
The financial profile of a suitable co-signer will be dependent on why a co-signer is required. If the main borrower’s credit is weak, the lender will be looking for a co-signer who has a strong credit history. If the primary borrowers qualifying income is hard to prove, the co-signer must have a strong reliable income source with minimal debt. A suitable co-signer has to look good where the main borrower doesn’t.
- Do you know the difference between a co-signor, co-borrower and a guarantor?
A few notable mortgage terms to differentiate between are a co-borrower, co-signer and guarantor. A co-borrower is just another applicant, such as the spouse or siblings buying a house together. All borrowers are qualifying together and all will likely owner occupy the subject property. Whereas a co-signer is usually brought on to add strength to a mortgage application where the main borrower lacks and it’s not unusual for the co-signer to owner occupy a different property.
A guarantor is not as common as a co-signer as future liabilities and implications for a guarantor can be quite different than that of a co-signer. A guarantor would personally guarantee the mortgage repayment in the event the primary borrower does not pay, however, a notable difference with a guarantor is that a guarantor will only go on the mortgage (the debt) and not on the title of the property (asset).
- Is the co-signer required to make the payments on all housing related costs if the main borrower does not?
As a co-signer on a mortgage you are now 100% responsible for that debt. In the case of a mortgage loan, this not only applies to the principle and interest payments, but also to the property taxes too and condo fees if applicable. Basically, if the primary borrower doesn’t pay, the lender will be calling you to make the payments.
- Do you know how quickly a co-signer is notified if the main borrower has defaulted on their payments?
There is a chance the lender may not notify the co-signer of any delinquent payments until the loan is already significantly behind. This could negatively affect the credit rating of the co-signer which could affect future borrowing potential. Prevent this by ensuring the co-signer is receiving copies of all mortgage documents to their home address.
- On future credit applications, does the co-signer need to disclose the mortgages they’ve co-signed on?
The co-signer needs to be aware of ALL the costs associated with any home they’ve co-signed on as they have to be disclosed on any future credit applications they enter into. This may impact how much can be borrowed going forward.
- Does the co-signer have to approve any changes made to the mortgage they’ve co-signed on?
The primary borrower cannot make ANY changes to the mortgage without the consent of the co-signer.
- Can a co-signer have 2 insured mortgages?
May 30, 2014 brought a major change to the co-signing rules of a CMHC insured mortgage that states an individual can no longer be a co-signer on a new CMHC mortgage if they already have a CMHC insured mortgage. The good news is there are still two other insurer options available in Canada, Genworth and Canada Guaranty in addition to a number of uninsured options though be aware not all lenders deal with all 3 insurers.
- Do you know the next step after you’ve been told a co-signer is required?
If declined for a mortgage and a co-signer is required, talk with your mortgage professional about what the lender will be looking for in order to grant financing approval. If a co-signer is not an option, discuss a plan of action to get your financial profile at a level that lenders will like sometime in the near future.
The purpose of this quiz is to help you decide if co-signing is right for you. If you have checked mostly ‘NO’ answers, your next step should be an in-depth discussion with a lawyer or a mortgage professional that is all about co-signing. Don’t be afraid to ask questions until you have a clear understanding of what is involved now and down the road.