What Does it Mean to Co-Sign a Mortgage?

There seems to be some confusion about what it actually means to co-sign on a mortgage and that confusion is exactly why you need to talk with a trusted mortgage professional that will seek to offer clarity.  First let’s look at why you may be asked to co-sign and what you need to know before, during and after the co-signing process.

Why are you being asked?  Last year we saw two sets of changes made to the mortgage world which can likely explain why you are receiving this request in the first place.

The first occurred early in 2016 whereby the overall lending standards were increased in regards to an individual’s management of their credit and the resulting responsibility of Canada’s financial institutions to ensure they are lending prudently.  We have seen an increase in requests for co-borrowers to help strengthen applications when credit or job stability is an issue.

The second happened in late 2016.  A new “Stress Test” rate applies which has especially impacted borrowers with less than 20% down.   They must qualify at a rate of 4.64% though their actual interest rate is much lower.  This has decreased affordability for many which means they could be looking for a co-borrower to increase how much home they can qualify for.

You need to ask questions as to exactly why the applicant needs a co-borrower.  If it is a credit issue then you need to assess if that is an acceptable risk – credit issue can be newly established credit or bruised credit. If it is a matter of not enough income, you need to assess that instead.  What is the exit strategy for you all from this joint mortgage?

What can you expect?  You will be required to complete an application and have your credit pulled.  As you are a borrower the banks will ask you for all the documentation that the main applicant has already provided.  This can include but will not be limited to:

  • Letter of Employment
  • Pay stubs
  • 2 year Notice of Assessments
  • Mortgage Statements on all properties you own
  • Bank statements if helping with the down payment
  • Property Tax bills
  • Divorce/separation agreement

In closing, the main point I want all co signers to fully understand is that the application is based on your Income and Liabilities only.  The purchaser Income and Liabilities is not taken into consideration on the application when a Co Signer is being used.

To fully understand your role as a co-signor, give me a call today!

Carolyn Munro

Cell: (204) 574-6353

Email:  carolyn_munro@centum.ca

Becoming a Guarantor or Co-signer

Thinking about becoming a co-signer or guarantor to help someone get a house?  Here are some points to consider:

Guarantor

Co-signer

–     Does not have their name on the property title

–     Completes the mortgage application as well as the primary applicant

–     Personally guarantees that payments will be made if the original applicant defaults

–     Can be used if the primary applicant qualifies with their income, but may have credit problems

–     Lenders may offer early release policies that allow the guarantor to remove their name if the original applicant can qualify on their own for the mortgage. 

–          Become a co-owner of the property as their name will be on the property title

–          Completes the mortgage application as well as the primary applicant

–          Is accountable for missed mortgage payments, though it is understood that they are not the going to make payments. 

–          Helps the primary applicant if they do not qualify income wise

–          Need to see a lawyer to remove their name from the property title.  Original applicant must be able to qualify on their own for the mortgage

When deciding to become a guarantor or a co-signer it is important to realize, that in either case, it may be a lengthy time commitment and should feel confident in the person they are assisting.

If you have any questions about this or any other mortgage details, please contact us. It’s important to have all the proper information before committing to a mortgage.