In today’s day and age, more and more borrowers are struggling to qualify for a mortgage.
When you look at house prices in your area and factor in a combination of stricter guidelines, new stress test rules, bruised credit, self-employed, etc., it can be challenging to say the least.
When this happens, sometimes the quickest and easiest option is to have someone co-sign. If the co-signer has good credit and income, they can help secure a mortgage.
But how does this impact the person co-signing?
Anytime you co-sign for a mortgage, car loan, etc, you need to factor those payments into any credit application you fill out moving forward...regardless if you’re making the actual payments or not.
When you co-sign for a mortgage you are put on the title, and on the mortgage with the bank/lender. Usually, you are put on title as a 1% to 50% owner of the property.
Moving forward, every time the co-signer fills out any application for credit, they will have to include 100% of the mortgage payments, property taxes, and condo fees (if applicable) on their application...regardless if they own 1% or 50% of the property.
These payments will be taken into consideration on the application and could potentially hinder any access to credit.
For example, if you have your own personal mortgage and it’s up for renewal, you could sign on the dotted line with your current lender and carry on. But, if you want to see what other banks/lenders are offering you’ll have to go through the qualification process. The property you co-signed will need to be disclosed and this could impact your ability to change lenders.
This could also impact you if you’re looking to do any of the following:
Buy a rental property
Refinance
Co-signing for anyone else
Buying a car, boat, etc
Apply for a home equity or unsecured line of credit
Some other possible disadvantages of co-signing on a mortgage:
If mortgage payments are missed, your credit score will reflect that.
Possibly damage your relationship with the borrower. When you buy a property together, you’re tied to that person and that liability until you are removed from the title and mortgage.
Having said all that, your co-signing for someone might not impact you at all - and you could be helping a loved one with homeownership.
If there is an exit strategy or at least a timeline for how long you’ll be co-signing, this might also put you at ease.
This is not to scare you from co-signing, it’s to provide you with the details you need to make an informed decision. You will need to think about future credit you might need access to, how long you’ll co-sign for, what happens if payments are missed, etc.
If you’d like to chat further about this, please let us know.
We are here to help.
Questions on your mortgage, or want to compare your mortgage to what is currently available? Get in touch!