Co-Signer for a Home Loan: What You Need to Know Before Co-Signing a Mortgage

Co-signing a mortgage is a big deal, one that you need to make sure you have enough knowledge about before undertaking it. It is true that by becoming a co-signer for a home loan, you will be helping out someone you trust and care about, but in the event that they fail to keep up with the payments, it will be your responsibility to step in and pay. There are several things to be aware of before deciding to become a co-signer for a house loan, and we will be telling you about them here in this post.

How Does Co-signing a Mortgage Work?

So, what does co-signing mean? When a family member, friend, or simply anyone you care about applies for a house loan, the lender will look at their finances and decides whether or not they can afford to pay back the loan amount in the upcoming years. If the lender thinks they can not and the application is weak, they won’t receive the loan. Now, in this scenario, you, the family member, friend, relative, or whoever who knows the applicant and has good credit, can step up and help by co-signing for a mortgage. In this way, not only the main loan borrower, but you will be responsible for the full payment of the loan amount as well.

This means that by co-signing a mortgage, if the borrower defaults, you are the person who will have to pay up, and the lender can legally come after both the borrower and you.

There is another topic we need to touch on here. We also have what is called a co-borrower. This is a good option for partners or people who want to live together. Just like co-signing, co-borrowing a mortgage loan means that you will be responsible for the payment of the house loan, the difference being that your name will be on the property’s title, meaning that you will be the co-owner of the house. It also means that you will have more responsibilities besides the loan payment, such as sharing maintenance costs, decisions on topics like renting out the place or renovations and etc.

Pros and Cons of Having a Co-Signer

As you have probably guessed already, there are downsides to having a co-signer, along with the benefits. Here are some you should know about:

We also recommend First-time homebuyer mortgage options if you are looking into buying a house right now.

Co-Signer Requirements in Canada

Co-signing a mortgage in Canada is not as easy as walking to the lender’s office and signing something. Just like the borrower, the co-signer also needs to have certain qualifications.

Requirements Needed

• A Good Credit Score: The most important qualification of a co-signer is to have a solid credit score.
• Stable Income: You need to either have a job with a consistent, monthly income or investments that show consistent profits throughout the year.
• Not Heavily in Debt: If your debts are too considerable compared to your income, lenders are not going to be eager to accept you as a co-signer.
• A Canadian Resident or Citizen: Another one of mortgage co-signer requirements in Canada is that many lenders in Canada require you to be either a citizen or, better yet, a permanent resident in that country.
• Old Enough: An obvious one, you need to be of legal age, meaning either 18 or 19, depending on the province, to be able to co-sign.
• Having Valuable Assets: Not necessarily a requirement, but to make your application as a co-signer stronger, you must have assets such as investments, properties, savings, etc.

To learn more about the required credit score, you can have a look at Minimum Credit Score for a Mortgage.

Legal Obligations of a Co-Signer

According to the things said in this YouTube video, the most important legal obligation of a co-signer is being financially responsible; if the borrower defaults, the co-signer will have to pay the missed payments, late fees, and interest. If they don’t, the lender has the right to sue both the borrower and the co-signer.

Risks and Responsibilities for Co-Signers

There are some risks taken by the co-signer that they need to be aware of before making this important decision:

• Credit Impact: Any missed payments by the borrower can negatively affect the co-signer’s credit score.
• Affecting Co-signer on Future Loans: Something important to keep in mind is that the loan will be noted in the co-signer’s record or credit report, so if they want to take out a loan of any kind for themselves, the lender will be aware of the house mortgage and might be dissuaded.
• Can Not Back out Easily: In order to remove yourself from the co-signer role, the loan needs to be fully paid off or refinanced mid-way.
• Relationships Ruined: If there are any issues on the borrower’s side regarding payment, and you are forced to pay in their place for a month or two or even maybe the entire loan amount, that can obviously lead to serious relationship problems and even complete fallouts.

Frequently Asked Questions

1. Why would I co-sign?

Typically, you become a co-signer if you mean to help out a family member, friend, relative, or dear someone. To co-sign, you need to be emotionally attached and prepared; that’s why being a co-signer is especially common among parents who want to help out their children.

2. How much does it cost to hire a co-signer?

Using hireacosigner.com as our source, the cost of hiring a co-signer starts at $24.99 to find a co-signer within 30 days and goes up to $49.99 if you need a co-signer within 24 hours.

3. How long does a co-signer stay on a mortgage?

Usually, until the loan is paid off completely, so basically years.

4. Can I remove myself as a co-signer on a mortgage?

Yes, there are a few ways. One is that the borrower can remove the co-signer mid-way by refinancing the loan, meaning they take on a completely new loan in their own name. Another way is that the lender allows what is called a loan assumption and removes the co-signer from the loan without the need for a new loan taken by the borrower. One last option is called loan modification, where the lender adjusts the terms of the loan agreement and removes the co-signer.

In a Nutshell

Becoming a co-signer for a home loan is a big decision and a significant responsibility. Before you decide to help a dear someone to buy a house of their own, you need to be aware of the financial and personal obligations and risks you will be taking. As we discussed, becoming a co-signer brings several risks, such as damage to one’s credit, financial strain, being stuck as the co-signer, and the difficulties in removing oneself from that role. Therefore, you must take all the risks and downsides and weigh them against the upsides and only then make an informed decision so that you go into this thing with a calm and clear head.