The recent tighter mortgage qualification rules reducing purchasing power by 20% combined with the higher prices of real estate, particularly in Victoria and Vancouver, can make it difficult for a person, or even a couple, to qualify for a mortgage on their own.
But with home prices rising and inflation looming, in some housing markets waiting until you have the income to qualify on your own could mean missing out on significant appreciation, or even home ownership altogether.
If you can’t qualify for a mortgage with your current documented income and a good credit rating, your lender may ask for, or require, you to seek a co-signer.
What is the difference between a co-signer and a guarantor? In essence, a co-signer will go on the property title with you, and a guarantor will only secure the mortgage, but not go on title. Either way the co-signer or guarantor will be as responsible for the mortgage payments as you are.
The majority of lenders require a co-signer, so the person co-signing will be on title with you. Remember that the lender is seeking to lower their risk, so adding someone with less than a great credit history or someone without sufficient additional excess income each month, won’t really make the application stronger.
Typically, it’s only a parent or both parents, a close relative or someone very close to the borrower who will go through the required full qualification process validating income, credit and overall financial health.
Co-signers own the house together with the primary borrower. The co-signer must sign all mortgage documents, and their name will appear on the title of the property. If you co-sign a mortgage, you become just as responsible for the loan repayment and payment schedule as the primary borrower.
As a co-signer or guarantor, your future borrowing plans can be affected since the mortgage will also appear on your credit report, and this additional debt and debt-service for mortgage payments, property taxes and strata fees if applicable, can make it more difficult for you to qualify for additional credit.
In contrast to being a co-signer, a guarantor has no legal right to the home as they are not registered on title. You should speak to a lawyer about legal ramifications of the inability of the homeowner to repay the mortgage for any of various reasons.
Can you remove a co-signer or guarantor from a mortgage? Yes, this is possible. When you are in a financial position to support the mortgage without your co-signer or guarantor you can contact your mortgage broker or lender and request to have the co-signer or guarantor removed. This will require you to complete the income and credit verification process on your own merits. Depending on how the mortgage is registered, what your lender permits, and what penalties there are, you can proceed. It’s always best to speak to your mortgage professional before making this decision.
