Why would you need a co-signer if you’re applying for a mortgage?
Along with gifted down payments, co-signers have become increasingly common. Due to increasing Canadian property values, higher interest rates, government stress tests on mortgage qualification and changing lender requirements, some borrowers can’t meet all of the financial requirements. This is not necessarily a reflection on you as a borrower, but based on historical trends and changing government regulations.
Let’s investigate in this blog how a mortgage co-signer can be helpful, when/how to include one as well as the financial implications of becoming a co-signer and how to remove a co-signer from a mortgage.
You’re In This Mortgage Thing Together
When applying for a mortgage loan with a co-signer, all applicants apply for the mortgage and all debt is shared equally among applicants.
When a co-signer signs for a mortgage, they must understand that they are responsible for all mortgage payments should the main applicants be unable to make their mortgage payments.
What do mortgage co-signers do?
Mortgage co-signers add strength to a mortgage application helping compensate for an income, credit or asset shortfall of the main applicant. These days, as a result of lending requirements and the Federal Government mortgage stress test, applicants can fall short on credit or income and a co-signer can help alleviate these lender concerns.
I’ve had instances where co-signers help just to increase income to meet required lending ratios and other occasions where co-signers have basically bought the property for children fully on their financing abilities. In this second case, the applicants were moving locations and were self-employed so job consistency was an issue. Parents co-signed knowing that the child’s income would be adequate to cover the mortgage because they were moving to a location where their particular construction services were in high demand.
The best mortgage co-signers tend to be immediate family
Why? There’s no difference between the primary applicant and the cosigner. Both parties are full owners of the property and have equal liability stakes to the mortgage. Carefully consider who you ask to co-sign with you.
I can’t stress this enough. They are equal owners of the property. They have an equal mortgage liability to pay back as much as you do. Technically, they’re in it with you, just like you are in it with them!
What Is The Impact For A Co-Signer?
By co-signing, you may be helping a family member and that is very good in many respects. However a clear and detailed understanding of your co-signer obligations needs to be clarified upfront.
The property mortgage will appear on your credit bureau. As a co-signer and equal liability homeowner, the entire mortgage payment will count against your borrowing ratios should you apply for new credit: buying a car, a home for yourself, a line of credit or credit card, ie. all new debt.
How Can You Get A Co-signer Off The Mortgage
This can take time so be careful before signing on for this type of obligation.
You could be released off in as soon as six months but also, and more likely, you may be committed a couple of years depending on how fast your principal applicant can improve their credit score, increase their income or change whatever shortfall required you to co-sign in the first place.
If you are uncomfortable having a lending discussion with your family members present, it’s advisable to arrange a private one-on-one meeting with a mortgage lender to determine the exact implications and liabilities you will incur in the position of co-signer.
Knowing your obligations before you sign on the dotted line is essential to making your co-signing commitment as smooth and drama free as possible.
One of my hobbies is blogging about mortgages, debt and government policy. During the day I’m a MORTGAGE BROKER!
Check out the Huber Mortgage Home Buyers Guide HERE