Co-Signing
Everything you need to know about enlisting the help of a co-signer to qualify for a mortgage
What I need to know about co-signing?
With house prices increasing, government qualifying rules tightening, and income documentation becoming more onerous from the banks, more Canadians are enlisting the help of a co-signer. A co-signer helps support the income qualification for an applicant by going on the property title and mortgage.
What makes a good co-signer?
An individual with strong credit and low monthly debts compared to their monthly income is ideal for co-signing. Also, a high degree of trust is required, since the co-signer will also be liable for the debt if it is not paid on time and in full, so in many cases, a co-signer is a family member.
The mechanics of co-signing
Note that when adding a co-signer, they must provide us with a full application along with supporting documentation, and we do perform a credit check. They must go through the same process as the main borrower(s).
The co-signer will need to sign mortgage documents and will be registered on title with the main borrower(s). In some cases, the title can be registered 99% in the main borrowers' name and 1% in the co-signers name. We recommend talking to a lawyer about the risks and benefits before doing so, but this may help alleviate some costs associated such as property transfer tax.
Cosigners vs Guarantors
When an applicant needs help with the income aspect of their loanapplication, a co-signer is required(and put on title, with a claim to the property). When an applicant has satisfactory income but tarnished or thin credit, then a guarantor may be suitable (not on title, no claim to the property).
Retired co-signers?
Yes! Retirement income does qualify and there is no age limit, so your retired co-signers could still be an excellent option.
Things to Consider
Financial transparency between all parties is critical as any mortgage commitment received will outline the qualifying income for each applicant. Both parties will need to be comfortable with this level of disclosure.
It is important for a potential co-signer to obtain independent legal advice to make sure they understand all of the implications of taking on this responsibility.
This debt is the co-signers debt too, so trust is extremely important. The co-signer is responsible on paper, even though they most likely won't make any of the actual payments. This debt would be considered in any future borrowing calculations.
The co-signer needs to be aware of the responsibility they are taking on. If the main borrower cannot make the payments, the co-signer is legally responsible to make them. This could have a negative impact on their finances.
Speak with your accountant about any tax/capital gains considerations.
Consent will be required from any spouse not signed on as an additional co-signer, to be arranged at your solicitor's office.
Many co-signers ensure the original borrower has mortgage life insurance in place to mitigate their need to pay out of pocket in most circumstances.
As you navigate your mortgage journey, remember that each case is unique. Feel free to reach out if you have any questions or need further clarification. We’re here to guide you toward the mortgage solution that fits your individual circumstances.
