Page 22 - REN July-Aug 2021

Understanding the Role of a Co-Signer

in Buying a Home

Michelle McNally courtesy Realtor.ca
or some first-time home buyers, help
from family or close friends can be the
Fkey to breaking down the barriers to
homeownership.
One of the ways loved ones can help hopeful
home buyers is by agreeing to be a co-signer
on the mortgage. Co-signing can be applied
to most types of loans, not just mortgages.
Essentially, a co-signer takes on the
responsibility of making the loan payments
in the event the original borrower can’t. By
providing this extra assurance to the lender,
co-signers can help applicants qualify for a
mortgage.

David Larock, President and Mortgage Broker
of the Toronto-based Integrated Mortgage
Planners Inc., has noticed an increase in the
number of applicants who are having to add
co-signers in order to qualify for a mortgage.

“[I] would say really the first time I noticed a material increase in the number of co-signers would have been when the
stress test was introduced both in late 2016 and then again in early 2018, and then again when [Greater Toronto Area]
house prices really started taking off as a result of COVID,” he said.

To understand more about how co-signing works, Larock walks us through the ins and outs of what you should know
about using or becoming a co-signer.

What is a co-signer and how do they help?
Larock explained typically family members or couples making a home purchase together agree to co-sign. Most
often, co-signing occurs between a parent signing on a mortgage for their adult child.
Unlike guarantors, co-signers are included on the mortgage title, making them accountable for payments if the
primary borrower defaults. If a co-signer wants to be removed or is no longer needed, they can be taken off of the
title after a minimum of one year.
“It used to be that going on as a guarantor was common, but lenders have really tightened that up, and for the most
part, lenders want you to go on as a co-signer, which means you have to go on the title,” explained Larock.

Co-signing on a mortgage is usually done as a temporary, short-term strategy for helping new buyers who don’t
qualify on their own. For example, if a newlywed couple are paid with a high bonus or a commission component, and
haven’t worked in that position for the required two-year period to qualify that income in the mortgage application,
they would have to qualify using a lower salary amount.

22 | REAL ESTATE NOW | denise@BCislandhomes.ca