Could You Benefit from A Co-Signer on Your Mortgage?
posted in Mortgage News
When it comes to applying for a mortgage in Canada, it could benefit you to have someone co-sign it for you, and below we take a look at co-signing in a little more detail:
What does it mean when someone co-signs a mortgage?
Basically, when a person co-signs your mortgage, they’re entering into an agreement to make the mortgage payments on your behalf, should you not be able to for any reason; together you share the responsibility of the mortgage. While there are risks involved, if you select your co-signer well – and most choose a family member – and both parties uphold their end of the agreement, it can be helpful in some circumstances.
Why might someone need a co-signer?
Having someone you trust co-sign on your mortgage could help increase your buying power, and make you more attractive to lenders. With the stress test making it harder for individuals to qualify for a mortgage, having a co-signer means that you can use their income to help you qualify, although it’s important to remember that their debts are also included in the application.
If you have poor credit, your lender may even stipulate that you have a co-signer before they even consider you for approval.
Who makes a good co-signer?
Many young first-time home buyers ask their parents to co-sign their mortgage, and if they’re still working with a good income and little to no debt, it can prove advantageous for the borrower.
How are co-signers different from guarantors?
The two are similar, but they do have some important differences:
- With a co-signer, their name must appear on the title, while a guarantor’s does not. This means that the co-signer may be required to pay some of the land transfer taxes, and if you’re buying your first home, you may lose part of the first-time buyer rebate.
- Guarantor’s do not own any part of the property, whereas the co-signer does.
- Co-signers are typically used for individuals with poor credit, while those with decent credit seeking to boost their maximum purchase price, may use a guarantor.
What you should know about co-signing
The individual you choose to co-sign your mortgage must be someone you trust. They must be able to make payments on your behalf if required, and failure to do so will not only mean that you must then make the payments, but your credit score could be negatively impacted, too.
If you’re a co-signer, this could affect the amount you’re allowed to borrow if you want to buy a rental property or purchase a more costly primary residence. Simply put, as a co-signer, you may not be able to spend as much as you could previously.
While co-signing can benefit a relative or close friend - and can almost certainly give them a better chance of qualifying for a mortgage - it’s not a decision to take lightly, and advice from a mortgage broker can help determine whether it’s the right decision to make, given both parties circumstances.