The market is hot, house prices are increasing and so is the interest rate. There are higher barriers to entry for a first time home buyer than there were last year. If you're having trouble qualifying for a mortgage, a co-signer might be the answer. Here are a few things you need to know.
What is a co-signer? A co-signer is a person who is taking responsibility, along with the primary borrower, to ensure the mortgage is paid. The co-signer acts almost like insurance to the lender that if the primary borrower does not follow through on payments, the co-signer is held legally responsible for ensuring the payments are made.
When is a co-signer required? A co-signer is required if the primary borrower has uncertain income, is self-employed, or at a young age where they haven’t established their credit yet. A co-signer may also need to sign for a relative or friend who just moved to Canada and hasn’t established themselves yet. Another reason a co-signer maybe required is if the borrower has had previous financial issues, like a bankruptcy or loan default, and they are now considered a financial risk.
What is required? Not only will the borrower have their credit history checked, but so will the co-signer. Credit reports, bank statements, income tax returns, verification of income, and paystubs will all be reviewed to ensure that the co-signer is suitable to sign on the home loan.
When co-signing on a mortgage loan, or any loan, to help out a friend or family member, make sure you have all the details. Review the contract. Sit down with the financial representative so you can completely understand what would happen if the primary borrower did not make the payments. If the payments fall behind, the responsibility bringing the payments up to date falls on the co-signer.
Also, determine if you will be on the title of the home. If you aren’t on title, but are responsible for the payments of the mortgage, you won’t have an asset to fall back on if the loan is defaulted on. Make sure that your best interests are protected.
Posted by Shannon Sharma on
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