Page 23 - 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 “In that case, we would add a parent as a co-signer with the understanding that once the newlyweds can qualify
responsibility of making the loan payments on their own—i.e. we’ve reached that two-year point where we can count the bonus income or the commission
in the event the original borrower can’t. By income—we can then go back to the lender mid-term without breaking the mortgage, prove the newlyweds now
providing this extra assurance to the lender, have enough income to qualify on their own, and have their parents taken off the title,” said Larock.
co-signers can help applicants qualify for a
mortgage. In other cases, Larock said a co-signer could be used when a homeowner has bought a new property, but can’t qualify
for the new mortgage until their old home is sold due to the costs of carrying both mortgages. A co-signer would
David Larock, President and Mortgage Broker help to guarantee payments are made on the new property until the existing property is sold and the borrowers are
of the Toronto-based Integrated Mortgage in a much more manageable situation.
Planners Inc., has noticed an increase in the
number of applicants who are having to add While a co-signer can help you secure a mortgage, it won’t improve your ability to cover the costs associated with
co-signers in order to qualify for a mortgage. homeownership. As most co-signing situations are used temporarily, Larock said the borrowers tend to have a clear
line of sight as to when they will be able to afford the loan by themselves through a reliable source of income. Larock
“[I] would say really the first time I noticed a material increase in the number of co-signers would have been when the explained buyers who can’t afford the property they want shouldn’t be using a co-signer just to buy a home.
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. “I think that would ultimately be a decision they regret, and in terms of what they can do, they could spend less
money,” said Larock. “They can buy a cheaper house and get a smaller mortgage, one they can more comfortably
To understand more about how co-signing works, Larock walks us through the ins and outs of what you should know afford.”
about using or becoming a co-signer.
What should you know about using or becoming a co-signer?
What is a co-signer and how do they help?
When it comes to co-signing for someone else’s loan, it’s not as simple as volunteering to make sure payments are
Larock explained typically family members or couples making a home purchase together agree to co-sign. Most made.
often, co-signing occurs between a parent signing on a mortgage for their adult child.
Larock said it’s common for co-signing parents to assume simply agreeing to be a co-signer for their child is all
Unlike guarantors, co-signers are included on the mortgage title, making them accountable for payments if the that’s required. In fact, lenders will treat co-signers as normal applicants, require all of the standard mortgage
primary borrower defaults. If a co-signer wants to be removed or is no longer needed, they can be taken off of the documentation, and will consider the co-signer’s income and debts. Once you are a co-signer, the mortgage loan is
title after a minimum of one year. your financial responsibility.
“It used to be that going on as a guarantor was common, but lenders have really tightened that up, and for the most “Of course, we have to disavow them of that idea and make it clear that when they go on as co-signers, they are joint
part, lenders want you to go on as a co-signer, which means you have to go on the title,” explained Larock. and severally liable for the full repayment of the debt,” said Larock. “So if the kids take off to Tahiti, the parents can be
pursued in full by the lender for the repayment of the loan.” g
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.

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