Co-signer On A Mortgage

How does co-signing a mortgage work? Having a co-signer is a very useful way around the strict rules in mortgage approval, even if the mortgage applicant has had negative issues surrounding their credit history. Most of the time, the amount of income coming in is what gets in the way of a mortgage being approved.

A co-signer on a mortgage is usually thought of like your parents, but there have been a lot of cases where children will be involved in co-signing a mortgage for their parents, as well. Sometimes you’ll have a sibling or a spouse that will be a mortgage co-signer. You might even see situations where a number of people will go in on co-signing a mortgage for someone. When co-signing a mortgage, the co-signer will usually be approved if the lender has enough information surrounding the mortgage application to prove that the risk of the loan repayment won’t be as much.

Looking Deeper At Co-signing A Mortgage

As soon as you include a mortgage co-signer into the scenario, their complete financial situation is also brought into the light. They don’t only check the credit score of the co-signer.

The co-signer will have to fill out an application and submit it to the lender for a full review. They will have to answer questions such as how many properties they own, what kind of debts they have, and other financial obligations they currently are involved with. The co-signer will be put under as much analysis as you will be as the purchaser.

Things That Make A Good Co-signer

The main thing that the lender will be looking at on the co-signer is their income and their credit history. A lot of people instantly think that people with a ton of money would be the perfect co-signer, but that’s not always the case. If the co-signer is living off of their OAS and CPP payments, that’s typically not the best scenario to strengthen your purchasing ability for a new home.

If one of the main things that are lowering your ability to qualify for a mortgage is your income, then you’ll want to get a co-signer that has a stable income. If you have a poor credit history, then you’ll want a co-signer with a good credit rating. The co-signer should make up for areas that you aren’t strong in.

Options For Co-signing

There are a few options in which a co-signer can go about it:

1. They can be a co-borrower. A co-signer as a borrower can be thought of as like a partner going in on the house as you. Their credit history and income will be added to the entire equation of things that go into the lender’s decision on mortgage approval. In addition, the co-signer will also be on the title of the house you’re purchasing. If you end up not being able to make any payments, then the co-signer will be just as responsible as you for the debt that occurs.
2. The co-signer can be a guarantor. With a co-signer as a guarantor, this means that they are confirming that you’ll be able to make your payments for the loan. If you as the purchaser aren’t able to make the mortgage payments for any reason, the co-signer will be responsible for it. A lot of lenders don’t approve mortgage applicants that include guarantors attached to them because they want all of the people involved to have a certain share of the ownership. Because of the tax implications of co-signing a mortgage, people might want to stray away from the co-ownership of a mortgage.

Important Things To Know About Being A Co-signer

• Being able to find a co-signer for your home is a nice deed that not everyone is willing to be involved in. As such, you don’t want the arrangement to go sour. You’ll want the co-signer to be able to trust and rely on you to make the mortgage payments so the burden doesn’t become theirs to deal with.
• As a co-signer, you have to realize there are risks of co-signing a mortgage, and it’s not a responsibility of yours to co-sign for just anyone that asks. If someone asks you to co-sign for them, you’ll want to take a close look at the type of person they are. Can they be relied on? Are they a responsible person? You need to think about these things because it could bite you in the back down the road if they aren’t able to make payments.
• Ensure that you get every piece of paperwork involved in the entire mortgage application.
• If you’re going to be a co-signer or guarantor for someone, your credit history will be entrusted with the borrowers. As a result, if there are any late payments, this will affect not only the purchaser but yourself. You’ll want to have complete access to all of the account information so that you can see any issues as they start occurring.
• You should ensure that the primary mortgage applicant for the purchase has disability insurance. This will protect the mortgage payments if the purchaser ends up with health conditions that will affect their payments towards the mortgage. Ensuring they have life insurance is another wise thing to do.
• Take a close look at the duration of the co-borrower agreement. This is a good thing to do because if the borrower is able to take on the entire mortgage a few years into the agreement, then you could potentially back out early and have them solely take charge of it.
• You might want to speak with an accountant regarding the tax implications of co-signing for someone. There’s a chance that you could have to pay capital gains taxes at some point in the future.
• For those who’re purchasing a house for the first time, co-signing has an effect on the tax rebates for land transfers.

Additional Tips

• One of the best tips for a co-signer is to ensure that the primary applicant knows they are completely responsible for the debt involved with the mortgage.
• Before you sign on the dotted line on co-signing a mortgage for someone, you should seek out some legal counsel to know your rights surrounding it.
• Everyone involved in the mortgage should have their wills up to date and have all of the details revealed surrounding their intentions of the property if death occurs. The executor of the will should have all of the instructions regarding the ownership of the home.
• A lot of the time, co-signers want to lower the impacts of taxes, so they go for the 1% ownership stake and will speak to the borrowers about it if there’s a negative tax implication further in the future.
• Most co-signers don’t want to deal with the negative tax implications in the future, so they get a real estate lawyer to create a bare trust agreement. The bare trust agreement states that the co-signer doesn’t have any beneficial interest in the property at any time.
• To make use of the Land Transfer Tax rebate, the bare trust agreement is useful. It will give the co-signer a chance to make use of the refund.