Co-Signing A Mortgage; What Is It and Should You Do It?
posted in Mortgage News
Whether you’re affected by a poor cashflow, temporary unemployment or a lack of credit history, affording your own home may be next to unachievable, without a little help, that is.
More and more Canadians are turning to third parties to help them provide security for loans, and mortgages are no different. Helping to address the lenders concerns about the ability of the primary borrower to pay back the loan, co-signing is becoming increasingly popular, but do you know enough about it?
Below is more detailed information about co-signing that should help you decide whether you seek help from a third party when applying for a loan, or indeed, whether you should become a co-signer.
What is co-signing a mortgage?
As the third party, you promise to pay the monthly mortgage payments if the primary borrower isn’t able to; taking on partial responsibility for that mortgage. Because co-signing is such a big responsibility, it typically only occurs among close family members.
Who might need a co-signer?
Low wage growth and strict lending criteria have made it difficult for many potential buyers to afford, or be accepted for, a mortgage, and anyone facing these issues might benefit from a co-signer.
Should you be a co-signer?
No matter how well you might know the person that you’re co-signing for, there are always risks associated with this process, and being responsible for a mortgage if the borrower defaults, is a weighty commitment. Ultimately, the choice to be a co-signer is yours, but think very carefully before committing to it, and be certain that the borrower has a reasonable chance of being able to make their payments on time.
Who can be a mortgage co-signer?
It’s important to remember that as a co-signer, your own finances will be under scrutiny, too, and the lender will look in detail at your income, debt and credit score. If you have a high debt load, little or no income and bad credit, the lender will doubtless refuse you as a co-signer.
Who make good co-signers of mortgages?
Co-signers with a high net worth or plenty of home equity, might prove favorable in the lender’s eyes, but ultimately, they simply want to be sure that you can make the loan payments, if the primary borrower cannot. To that end, evidence of a regular income and a good credit score are usually sufficient.
While co-signing a mortgage can certainly be of benefit to an individual searching for a loan with which to purchase a new home, as a co-signer, you’ll need to give it careful consideration before committing to anything, since it requires complete confidence and trust in the primary borrower, whether they’re your sister, mother, brother or son!