Could You Benefit From Someone Co-Signing Your Mortgage?

New Government rules have made qualifying for a mortgage challenging by reducing the maximum mortgage loan amount to five times a person’s income instead of the original seven. 

 Accordingly, after completing a thorough mortgage pre-approval, borrowers may learn they don’t qualify for the mortgage amount they want and wonder whether or not they can use a co-signor to help strengthen their application to obtain a larger mortgage loan.
 
As a side note, the alternative to using a co-signor is waiting until mortgage rules change, a higher income is earned or property prices decrease. All of these situations are certainly unforeseeable which could result in a very long wait for the desired mortgage approval a borrower is seeking. 
 
How can a co-signor help you?
 
If you’re someone who recently started a new job or a business and don’t meet the necessary income requirements, you can use a co-signor or guarantor to add income to the application. In the same way, you can also use a co-signor who has good credit if you have less than desirable or bruised credit.
 
If you’re on the edge of qualifying, it may be beneficial to consult a co-signor like a parent, sibling or other relatives. 
 
There Are Two Ways To Co-Sign A Mortgage
 

1. The first way involves a co-signor to take title to the property. The percentage of ownership can be determined by consulting a real estate lawyer about the best strategy. For example, a co-signor, like a parent, for example, may decide to only take a 1% share while their child will maintain a 99% share of the property both as tenants in common. Should the main applicant default on their mortgage loan, the lender can equally pursue the co-signor for the repayment of the loan. 
2. The second way a co-signor can be used is as a guarantor only. A guarantor uses their income or credit to strengthen the mortgage application but remains off the title to the property. In the event the borrower defaults, the guarantor is still on the hook for the repayment of the loan. Guarantors are usually required to have substantial assets like other property and liquid savings. ​

What Co-Signors Need To Know

Most co-signors of mortgage loans are parents and immediate relatives, and so there’s an innate need to help with mortgage financing. However, it’s equally important to consult a lawyer and mortgage professional such as myself about what it means to co-sign in terms of liability to the lender as well as overall financial health. For example, some parents may need flexibility within their credit tolerance risk to access more loans in the future to help other children purchase property or obtain a student or car loan. If they are tied to another mortgage loan this may prohibit them from being able to co-sign or guarantee other loans or even access more loans for themselves. 

Co-Signors Can Be A Very Short Term Solution

Most buyers take a five-year mortgage loan because of its security and lower interest rate, but that doesn’t mean that a co-signor has to be in the co-signing game this long. I usually coach my clients to get themselves into a position where they can apply to their lender to simply remove the co-signor once they are able to support the loan by themselves. This can be when their credit is within lender requirements or they are earning more income. 

If approved, their lender will then release them from the mortgage debt obligation. 
 
Are you currently looking for a property? Need a pre-approval or want to double-check your pre-approved amount? Call me today for free, without commitment, credit consultation.

Call us directly at (647) 773-4849
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