It happens more often than you’d think, especially here in BC. With the average person’s income being less than $50,000/yr and the average home price being around $750,000 most individuals will not be approved for the mortgage amount required without a little “help”. This can come in the form of a Gifted Down payment (an immediate family member giving you money towards a home purchase) or someone being either a Co-Signor or Guarantor for the requested loan amount. If you’re in a situation where you think you may need a Co-Signor or Guarantor it’s important to know the difference. More so, it’s also important for the person you’re asking to know the difference as well. So let’s break it down.

Co-Signor

In most cases, a Co-Signor is added to the Mortgage because the primary applicant does not earn enough income to be approved for the required mortgage amount.

Here are a few points about the Co-signor:

1.  A Co-signor co-owns the home with the individual living in it and paying the mortgage.
2. The Co-signor must complete an application, sign all of the mortgage documents and
3. Their name will appear on the title of the property.
4. Will be held accountable for the total loan amount if the primary applicant does not make the mortgage payments.

Parents, please take note:

1.  The Application should be filled out the same way as if you were applying for the loan yourself. Expect to provide income verification as well as property documents pertaining to any and all homes you own (primary residence, vacation homes, rental homes, etc.)
2. If you’re thinking of borrowing money in the near future please note that the total loan amount that you’re helping your son/daughter apply for taken into consideration in your application. What I mean by this is that if your child is applying for a $500,000 loan, from a Banks point of view, YOU have a loan for $500,000. They do not care that your child is the one making the payments, or that you only own 50% of the property. As you’re an owner, you’re on the hook for the total amount. This is because if your child stops making the payments, the bank will be contacting you.

Loan Guarantor 

Simply put, a Guarantor guarantees that the mortgage payments will be made. Unlike the Co-signor, a Guarantor is usually added to the mortgage application when the primary applicant’s income is “close” to being approved for the mortgage amount required but just needs a small “boost”. Or if the primary applicant has a poor or weak credit score.

Here are a few points about the Guarantor

1. Guarantors’ name is on the Mortgage, but NOT on the title of the property.
2. They’re still responsible for the total mortgage amount and the payments if the primary applicant does not make them.

How to remove a Co-signor or Guarantor in the future

When speaking with my clients, the goal is always to put together a plan on how to remove the Co-signor or Guarantor in the future. We’ll discuss what needs to be done moving forward and how much you’ll need to earn to remove the helpful parent or guardian. Please note that once you’re approved for the loan all by yourself we’ll need to refinance and apply for the mortgage all over again. One advantage of being a Guarantor is that because they are not on the Title, there’s less paperwork and fees required.

Here are the Coles notes:

Co Signor

• Their name will appear on the mortgage and the title of the property
• Legally they own the property
• They will be held accountable for ensuring that the payments are made
• Typically used when the primary applicant’s income is not enough to approve them for the required loan amount

Guarantor

• Their name will appear on the mortgage but NOT on the Title of the property
• They’re usually in better financial standing than the primary applicant
• They guarantee that the mortgage payments are made, even if the primary applicant defaults
• Typically added to the application if the primary applicant’s credit is low or weak.

As always, reach out to me if you have any questions.