The dream of buying a home of your own, on your own, has become just that, a fading dream. There are two reasons for this: a strong housing market in the Greater Toronto Area and the prohibitive mortgage rules. The housing market in the GTA and Golden Horseshoe is very robust which can make it difficult for potential home buyers to save up a 20% down payment. Even if you do, there’s no guarantee you’ll be able to pass the big bank’s strict lending rules.
Case in point: In 2018, it is estimated that the recently implemented stress test sidelined 40,000 home purchases. Homebuyers aren’t left with many options—they can either keep renting and save up a bigger down payment or perhaps buy a smaller home.
There is another option, however, and that’s having someone co-sign a mortgage with you. Whether you’re the one asking for a co-signer or the mortgage co-signer, there are some important things you need to know before taking that step.
What You Should Know about Co-signing a Mortgage
If you’re turned down by a traditional lender, either because your down payment wasn’t enough, you have a poor credit score, or didn’t meet the bank’s strict mortgage lending rules, one option is to get someone to co-sign your mortgage.
A co-signer is someone in good financial health that can help you qualify for a mortgage. And in doing so, they are backing you up, saying you will make good on your promise to make mortgage payments.
As a co-signer, they take on the financial risk of the mortgage, which means the co-signer also owns the home, whether they live there or not.
Who Can Be a Co-Signer?
Anyone can co-sign a mortgage. And a mortgage can have more than one co-signer. Typically, though, a co-signer will be a spouse, if you’re married. If you’re single, it’s common for a parent, family member, or a partner to be a co-signer. Whoever the co-signer is, they should be someone you trust and who trusts you.
It helps to get the agreement on paper, which means drawing up a contract between you and the co-signer, outlining all of the rights and responsibilities. This includes who will live on the property, take care of it, and pay the bills. Both the homebuyer and co-signer should get their own independent advice and have any documents reviewed by an attorney before the mortgage papers are signed.
Responsibilities of Being a Co-signer
It’s great to be in a position to help someone get their mortgage by being a co-signer, but it’s important to know what the responsibilities and ramifications are of being a mortgage co-signer.
Qualifying for a Mortgage
When you agree to co-sign a mortgage, you basically end up going through the entire mortgage process again, just as if you were buying the home for yourself. Lenders will look at your income, credit score, and debt levels.
Mortgage Payments Are Now Your Responsibility
Congratulations, as a co-signer, you just bought a house. And because your name is on the mortgage, you are responsible for the debt of the mortgage. The term “co-signer” might sound like you aren’t as involved in the mortgage as the person you’re helping out, but you have the same legal obligations as anyone else who takes out a mortgage. Even if you aren’t living on the property.
If the person you co-signed for can’t make a mortgage payment, for whatever reason, because your name is on the mortgage, you’re expected to. When you co-sign for a mortgage, you take on the responsibility for making the mortgage payments, even if, technically, you never expected to.
If the person you co-signed for misses a mortgage payment and you do not make them, the lender could take legal action against you. The banks could garnish your wages or go so far as to foreclose on the property.
This Can Affect Your Credit
Being a co-signer will affect your credit and your ability to borrow money. If the person you co-signed for loses their job and can’t make their mortgage payments, it’s not just their credit score that gets hit. Yours does too.
That missed payment (or payments) will appear on your credit report, which could negatively impact your ability to get a loan in the future. It will also hurt your chances of getting the best lending rates.
If you want to borrow money to renovate your own home, buy a car, or take out any kind of loan, you could be turned down by the bank, if the person you co-signed for misses their mortgage payment.
Even if the mortgage payments are made on time, it can still affect your credit. That’s because the mortgage is still in your name and that additional debt could be seen as a liability.
Once a Co-signer Always a Co-signer?
Yes and no. On one hand, the co-signer can remain on the mortgage until it is paid off in full. On the other, it’s possible for the co-signer to get their name removed from the mortgage.
Unfortunately, the name of the co-signer cannot simply be removed from the mortgage contract. There are some hoops to go through. To get your name off a mortgage as a co-signer, the person who had you co-sign the mortgage needs to make a new mortgage application in their own name and qualify on their own.
If they do qualify for a mortgage, your name can be removed, along with all of the legal obligations. If they don’t qualify, your name stays on the mortgage until the next term.
Canadalend.com, Helping You Secure a Better Mortgage
Adding a co-signer to your mortgage if your application has been turned down by the big banks is certainly one option you can pursue. But, if you’d rather get a loan on your own, contact the mortgage experts at Canadalend.com.
The licensed mortgage professionals at Canadalend.com are independent. That means they want to help you find the best mortgage with the best rates possible. They aren’t pushing any one bank’s products. In fact, because they’re independent, they have access to hundreds of different lenders, many who specialize in providing mortgages to those who were unable to pass the banks’ stringent mortgage rules, have weak credit, no credit, unreliable income, have declared bankruptcy, or have unreliable income.