CO-SIGNING A MORTGAGE
With our current real estate market, getting a Mortgage is not as easy as it has been in the past. With rising rates, and more qualification criteria, it is certainly more challenging.
But don’t worry – There are many ways that home buyers can get approved more easily. One of the most popular ways is to have a mortgage co-signer.
What is co-signing?
Co-signing essentially means adding another financially capable person to your mortgage contract.
A mortgage is usually the biggest purchase of your lifetime, therefore, there are many factors that play in to getting you approved. These factors usually include your credit score, income, debt service ratios, and lender interest rates. Again, it is now more difficult than ever to jump through all of these hoops by yourself; That’s where mortgage co-signing can become a relieving option!
Two types of co-signing.
There are 2 major types of co-signing. The first is a co-borrower. You would share the title and financial responsibility equally. Both parties are responsible for paying the mortgage.
The second is a guarantor, a co-signer who doesn’t gain a title, but vouches to the lender and is responsible for the debt if the titled owner defaults.
Generally, lenders and banks prefer a co-borrower over a guarantor, meaning it can be potentially more difficult to secure a mortgage
Who can be a co-signer?
Anyone! The most common co-signing mortgage we see is parents helping their children, but it can be a spouse, sibling, friend, business partner, or basically, anyone who is financially stable, and whom you trust! (Feel free to ask a CMP team member for guidance on trust, or potential future issues)
Risks of co-signing
If you are the co-signer, you take responsibility for the loan repayment, along with the main borrower. If the main borrower misses a payment, you will be responsible for paying it. If both the main borrower misses a payment, and the co-signer also misses that payment, it will appear on all signer’s credit reports. We recommend that all signers have a continuous open conversation about their current financial status, so everyone can avoid any repercussions.
The co-signer will also have an increased debt service ratio after co-signing. This may cause problems for them when they try to get another loan or mortgage, as this may limit their ability to borrow in the future.
When the main borrower decides to sell the house down the line, and the house has increased in value, the co-signor may agree with the main borrower to receive a portion of the increased capital value. In this scenario, the co-signer may be required to pay tax in the form of capital gains. (Again, feel free to ask a CMP team member for guidance on this topic)
Benefits of co-signing
Your mortgage is more affordable, and you are more likely to be approved for a larger mortgage.
The co-signer can also receive a benefit from the investment! You can share in the property’s equity.