If you are a borrower who is perhaps self-employed, have questionable income stability or employment history or mediocre credit, it’s likely that your lender will need a guarantor or cosigner for your mortgage. In their eyes, this will ensure them that someone will held responsible if you’re unable to make your mortgage payments.
You may be the person who is considering becoming the guarantor or cosigner than you should understand the difference between the two, as they are very different. Each comes with certain rights and responsibilities.
A Mortgage Co-Signer
If you are considering becoming a mortgage co-signer this actually means you are becoming an owner of the property. You’re name will also be on the land title that is registered with the city or municipality. This makes you responsible for the mortgage payment (even if you don’t actually have to make any).
However, if someone has asked you to co-sign for them, they’ve asked you to do so to give strength to their mortgage application by adding your information and income. Once the borrower can qualify on their own, you can be removed at a later time in the future. However, keep in mind that this comes with additional costs for legal fees to change the property title.
A Mortgage Guarantor
Now should you have sufficient income and employment history proof and stability, but your credit history or score doesn’t meet the necessary requirements, you’re lender will ask you to obtain a guarantor for your mortgage loan.
Should you need a guarantor or decide to become a guarantor for a borrower, know that you will also be responsible for the mortgage payments if the borrower defaults. However, before you can be added as a guarantor, you must be screened by a lender. During the screening process, lender will look at your:
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Credit history, rating and score
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Income
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Net worth statement
Once you become a guarantor, you will remain one for a number of years, therefore you need to think about these agreements and commitments carefully and weigh any personal, potential consequences. If the borrower defaults and you’re also unable to take over the payments it could affect your credit and ability to secure your own financing in the future. Ensure you review all documents before signing the mortgage agreement.
Regardless, whether you become a co-signor or guarantor for a mortgage you should always consult a mortgage broker or lawyer before signing anything.
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