The Benefits and Risks of Co-Signing a Mortgage

Co-signing a mortgage means that an individual other than the prospective homebuyer (usually a member of the family or friend) co-signs a mortgage generally when the credit and the income of the homeowner is not sufficient for them to qualify for a mortgage. Essentially, co-signing a mortgage depicts that the individual co-signing the mortgage agrees to pay the potential homeowner’s loan if they are unable to afford their own payments or if they default, in any situation.

If a person agrees to co-sign a mortgage, they become a co-borrower until their name is removed from the mortgage when the homeowner becomes financially stable and afford their own payments. Moreover, the co-signer will not be able to receive any benefits of the mortgage. When signing a co-signer agreement, the co-signer is essentially certifying the lender that the loan payment will be made whether the primary borrower is making the payments or not. Because of this guarantee, the homeowner will have an easier time qualifying for a larger mortgage at a lower interest rate.

If a mortgage applicant has a bad credit, they would require a co-signer to ensure timely payments are made. Commonly, a co-signer is required when the applicant is a fresh graduate who has a short history of employment and has a poor credit score. Another situation would be when a borrower has a bad credit history because of delayed payments on their loans.

It is also important to note the difference between a co-signer and a guarantor. The difference basically comes down to claim over the property or share of the home’s title, among other included factors. A co-signer is an individual who agrees to make homebuyer’s mortgage payments in case they are not able to afford the payment. On the other hand, although a guarantor also certifies that the homebuyer will make timely payments, regardless of the circumstance, the guarantor is not required to sign the mortgage, share the home’s title, or own a portion of the property. Under normal circumstance, a guarantor will assist a strong application to further qualify for a better interest rate or mortgage but will still have their credit and finances analyzed.

One of the major risks pertinent to co-signing a mortgage is that the co-signor will have the mortgage listed on their credit report and would be responsible for the payments. Most Canadians prefer to have family members as their co-signers because they are more likely to have a strong credit and increased income in later stages of their life. Moreover, prospective homebuyers should ensure that the co-signing individual is reliable should the need arise for them to help out with future payments.

The benefit of becoming a co-signer is that the individual will be able have some claim over the property, and they will share the home’s title as well. Nevertheless, it is essential to consider that co-signing a mortgage is a heavy responsibility without any of the benefits of being a true property owner. By co-signing a mortgage, the co-signer also becomes a partial borrower and if the homebuyer defaults on a payment, then the co-signer will have to make payments.