A few decades ago, you probably would have been able to buy a decent home for under $100,000. Today, homes can go for five, or even ten times that amount, especially in desirable suburban or city areas. Due to the state of Canada’s real estate market, it’s getting much harder to afford a home and still have money left for essential costs. Plus, the high price of most homes can make it incredibly hard to qualify for a mortgage.
That’s why many homebuyers will ask a family member or a close friend to co-sign their mortgage.
What Does It Mean To Co-sign A Mortgage?
By co-signing a mortgage, you’re agreeing to cover the buyer’s loan if they default or are unable to afford their payments. You wouldn’t see any of the typical benefits of the mortgage but you would be a co-signer until the primary buyer pays off their loan or has your name removed from the contract when they’re financially stable enough.
This essentially gives the lender a guarantee that the loan payments will be made, whether or not the primary borrower is the one making them. As such, the buyer usually has an easier time qualifying for a decent loan, interest rate and payment plan.
When Would You Need Someone To Co-sign A Mortgage?
Generally speaking, a prospective home buyer will get somebody to co-sign their mortgage because their income and credit won’t allow them to qualify by themselves. Similarly, if you’re financially stable and have good credit, one of your friends or family members may ask you to co-sign their mortgage someday.
Your Rights When Co-signing A Mortgage
While it seems simple and safe enough on the surface, there are some important things to understand about your rights and responsibilities as a co-signer:
You’re Responsible For The Mortgage Too
The primary borrower is responsible for their mortgage. Their payments only become your problem if they default or ask you to cover them. Unfortunately, if the buyer has already missed payments, you may also have to pay the late fees or interest their account has accumulated. Furthermore, your credit score may also be affected if the primary borrower misses a payment, so make sure the person is trustworthy before co-signing.
You May Not Own The Property
Depending on how the title is registered you may own the property 50/50 or not all at. Before you become a co-signer, how much of the property you own is something you need to ask and know.
How To Remove A Co-signer From A Mortgage
The mortgage will need to be refinanced in the primary borrower’s name. This means that the primary borrowers need to be able to qualify for their own mortgage for you to be removed as a co-signer.
Make sure that a refinancing does not constitute a mortgage contract break. This could trigger penalties.
Can Co-signing A Mortgage Impact Your Credit?
Yes. Co-signing a mortgage can affect your credit score if payments aren’t made, as both your credit reports are linked to the mortgage. Luckily, this also means your credit will slowly get better if you or the primary borrower makes timely payments.
What Are The Requirements To Co-Sign A Mortgage?
To qualify as a co-signer, you have to prove that you can afford the mortgage if the main borrower can’t. Although exceptions may be possible with alternative lenders, most prime lenders will only allow you to co-sign if you have a strong income and good credit.
So, before approving you, they will likely inspect your:
- Credit report, credit score & payment history
- Identification & residency details
- Latest bank statements and/or paychecks (proof of income)
- Assets & liabilities (current debts, properties, etc.)
This inspection will occur when the primary borrower applies for their mortgage. Watch out, this will lead to a hard credit check, which may lower your credit score and stay on your credit report for several years. Don’t forget to bring at least two forms of government photo ID, like your passport, driver’s license and/or Medicare card.
What’s The Difference Between A Co-signer And Guarantor?
When it comes to Canadian mortgages, there are a few positions you can apply for that would give you various responsibilities or forms of ownership over the home:
Mortgage Co-signer
Common with parents, guardians and siblings, a co-signer is someone who agrees to pay the buyer’s mortgage payments if they can’t afford them or default on their loan. Since both borrowers are tied to the loan, their incomes, credit histories and debts will be inspected beforehand. As such, the co-signer may or may not have some claim over the property.
Mortgage Guarantor
A mortgage guarantor also guarantees the primary borrower’s payments will be made, no matter the circumstances. However, they don’t sign the mortgage, own any of the property or share the home’s title. While both parties will have their finances and credit inspected, most guarantors are there to help stronger applicants qualify for better mortgages or interest rates.
| Co-signer | Guarantor |
| Your name is on the home’s title but you don’t necessarily own the property or homebuyer’s assets | Your name is not on the home’s title and you don’t own the property or homebuyer’s assets |
| You need to sign the mortgage application | You don’t need to sign the mortgage application |
| You’re responsible for making payments if the homeowner can’t | You guarantee the payments, even in the borrower defaults |
| You are part-owner of the home | You don’t own the property |
| Used mainly by home buyers with less healthy finances or credit to increase borrowing power | Used mainly by applicants with stronger credentials, who are looking for a boost to their title |
Can You Be A Co-signer?
This depends on your finances and the lender’s specifications. For instance, if you have a low income and credit score, your chances of being a co-signer with a prime lender like a bank are far less likely, because the approval requirements are tighter. This is particularly true if you don’t have a solid job or your bad credit is due to missing payments in the past.
As mentioned, becoming an eligible co-signer is mostly about proving to the lender that you would be able to cover the primary borrower’s payments if they’re unable to. During the application process, your finances are just as essential for approval as theirs.
How To Be A Good Co-signer
Some lenders are more lenient than others. While many alternative mortgage companies accept clients with less-than-perfect credit scores or incomes, banks and credit unions generally won’t. That said, a mortgage is a huge amount of money, so the approval process is normally long and detailed no matter where you apply.
Lenders look at a variety of factors when approving mortgages, but one of the most important factor is your ability to afford the primary borrower’s mortgage payments. So, the best way to qualify as a co-signer and help the home buyer secure a decent mortgage is to have:
- A good credit history and high credit score (at least 660 – 900)
- A solid source of employment and high monthly income
- A low debt-to-income ratio (ideally no large debts at all)
Should You Say “Yes” To Being A Co-signer?
Whether you’re about to be a co-signer or you’re asking someone to co-sign your mortgage. It’s important to assess the situation and think things over before signing any contracts. Similar to buying a home, co-signing a mortgage is a major financial responsibility, only without the benefits of being the property’s true owner.
Remember, as a co-signer, you’re also a partial borrower and if the primary buyer can’t make payments or defaults, whatever debt and financial consequences that follow will become yours to deal with. That’s why many co-signed mortgages come from financially established parents who are helping their children purchase a home.
Tips For Co-signing A Mortgage
If you’re committed to being a mortgage co-signer, it’s best to do lots of research, prepare yourself financially and think about your decision carefully beforehand. Here are some things you should do to become a qualified co-signer to a mortgage:
Get Your Finances & Credit Ready
Don’t forget, the two most important elements when trying to qualify as a mortgage co-signer are a solid income and good credit. For the highest chances of approval and lowest rates, be sure you have a steady job, little to no debt, and a good amount of savings to fall back on. It’s also a good idea to check your credit.
Watch Out For Missed Payments
Missing a mortgage payment can affect both the main borrower’s and the co-signer’s credit. This is why it’s important to co-signer a mortgage for someone you trust. Keeping an open line of communication with the borrower can also help prevent missed payments.
Figure Out Your Legal Rights & Responsibilities
Co-signing a mortgage can affect your credit, debt levels, and relationship with the borrower. It’s important to understand your rights and responsibilities as a co-signer, and also seek professional advice if needed.
Request Access To Buyer’s Mortgage Information
Even if you don’t own the property, you should know exactly how the mortgage is being handled. Since the actions of the primary buyer can affect you too, it’s better to have access to their mortgage account in case you need to deal with the payments they miss.
Ask For Copies Of All Paperwork
To further protect yourself against the potential negative actions of the primary borrower, request physical and digital copies of any documentation involved. This way, you’ll have an easier time understanding the agreement.
Thinking About Co-signing A Mortgage?
Then no amount of preparation is too much. For more information about your co-signer rights and responsibilities, look for some professional legal and financial assistance.
