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, even six or seven 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 close friend to cosign their mortgage.
Generally speaking, a prospective home buyer will get somebody to cosign their mortgage because their own income and credit won’t allow them to qualify by themselves. In fact, if you’re financially stable and have good credit, it’s possible that one of your friends or family members will ask you to cosign their mortgage someday.
By cosigning 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-borrower 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.
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While it seems simple and safe enough on the surface, there are some important things to understand about your rights and responsibilities as a cosigner:
The primary borrower has most of the main rights and responsibilities when it comes to the property itself. As a cosigner, you’re only there to ensure the mortgage is paid on time when the borrower can’t afford it.
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, so make sure the person is trustworthy prior to co-signing.
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.
You may be able to remove yourself as a mortgage cosigner by requesting a “cosigner release”. This will absolve you from any responsibilities if the primary borrower can’t make payments. However, the homeowner has to sign the release beforehand and the lender must approve it, which may not happen if the homeowner seems like they can’t handle the payments alone.
To qualify as a cosigner, you have to prove that you could 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 cosign if you have a strong income and good creditworthiness. So, before approving you, they will likely inspect your:
This inspection will occur when the primary borrower applies for their mortgage. Watch out, this will lead to a hard credit check/inquiry, which will 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.
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:
Common with parents, guardians and siblings, a cosigner is someone that 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 cosigner may or may not have some claim over the property.
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.
Seen with spouses and common-law partners, a mortgage co-borrower buys into a percentage of the property. They go through the same application process and mortgage stress test (although the borrower with the higher income may take precedence and own the home’s title). The stronger their finances/credit are, the more borrowing power the team has.
| Cosigner | Guarantor | Co-Borrower |
| 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 | Your name is most likely on the home’s title and you have some ownership over the property |
| You need to sign the mortgage application | You don’t need to sign the mortgage application | You 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 and the other borrower split responsibility for the payments |
| You are part-owner of the home | You don’t own the property | You are part-owner of the home |
| 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 | Used mainly by applicants who are buying a home and splitting the debt with another person |
This depends on your finances and the lender’s specifications. For instance, if you have a low income and credit score, your chances of qualifying 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 cosigner 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.
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 to lend out, so the approval process is normally long, complicated and difficult, no matter where you apply.
While some lenders will consider the fact that you have other assets to offer as collateral or high net worth, most are only looking at one thing; your ability to afford the primary borrower’s mortgage payments. So, the best way to qualify as a cosigner and help the home buyer secure a decent mortgage is to have:
Whether you’re about to be a cosigner or you’re asking someone to cosign your mortgage, it’s important to assess the situation and think things over before signing any contracts. Similar to buying a home, cosigning a mortgage is a major financial responsibility, only without the benefits of being the property’s true owner.
Remember, as 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 cosigned mortgages come from financially established parents who are helping their children purchase a home.
If you’re committed to being a mortgage cosigner, 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 cosigner to a mortgage:
Then no amount of preparation is too much. While you won’t see the full benefits of homeownership, you’ll still qualify as a co-borrower, so your finances and credit will be linked to the main buyer’s mortgage account. For more information about your cosigner rights and responsibilities, look for some professional legal and financial assistance.
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Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.
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