Mortgages are getting tougher to qualify for every year. More and more millennials are requiring help from their parents or other family members to buy a home if they don’t qualify on their own. Parents can offer to co-sign or guarantee a mortgage. In both cases, they still have to qualify to be on the mortgage. Often the terms co-signer and guarantor are used interchangeably, but they have different meanings and rights. Learn what the difference is between a co-signer and a guarantor.
A co-signer is a co-owner of the mortgaged property. The co-signer is registered on the title of the home and is equally responsible for the mortgage payments. The primary applicant will often make the payments. However, if they miss payments, the co-signer is responsible for paying the mortgage.
Co-signers are often required when the applicant’s income or credit needs to be supported. If the primary applicant’s qualifying ratios or credit bureau doesn’t meet the bank’s guidelines, a co-signer is required to add strength. If the primary applicant doesn’t have good credit, often their income cannot be used on the mortgage application. This means the co-signer must be strong financially to support the payments.
Because a co-signer’s name is on the property’s title, he or she must sign all of the legal documents and can expect to stay on the title of the home until the applicant qualifies for the mortgage on his or her own. There is no minimum or maximum amount of time a co-signer will stay on the mortgage. Once the primary applicant qualifies for the mortgage, the co-signer can be removed from the title of the property and then removed from the mortgage. Removing someone from the title involves legal fees.
A guarantor personally guarantees that the mortgage payments get made if the primary applicant stops making them. If the applicant has poor credit or has yet to establish credit, the bank will usually require a guarantor.
Guarantors have no claim to the property because they don’t go on the title of the property. Therefore, it’s essential for guarantors to know the circumstances of the person they’re helping and be sure the applicant will make the mortgage payments. Before signing, guarantors should seek independent legal advice from a lawyer.
Being on someone else’s mortgage can have its drawbacks. It is not just about making up missed payments. The account reports to the credit bureau. A co-signer or guarantor need to evaluate their personal needs. If they want to buy their own home in a few years or apply for other credit, such as a car loan, they may not qualify because they are equally responsible for the mortgage payments.
A co-signer is on the title of the home, and a guarantor isn’t, but they have the same responsibilities. Helping a child or family member into homeownership can be very rewarding. It gives them the opportunity to start building equity and a financial future. Make sure that all the details are understood and that you consider your future needs before signing on the dotted line.