Attention All Co-Signers

Your family member or friend just asked you the big question, “will you co-sign for me"?”

It’s a big question and as much as you REALLY want to help your family member or friend, what does co-signing really mean? How will it effect you and your financial situation?

First, lets just say that co-signing for a loved one is a huge gift and something that I want to recognize and say thank you for considering. Getting established can be so challenging whether the person needing help is a newer to their job, has unestablished credit or maybe someone who is self employed and doesn’t have the income on paper to qualify. I have worked with a number of clients who are now happy home owners who would have never been able to realize their dream of home ownership without their co-signers help.

What exactly is co-signing for a mortgage?

In essense, you are purchasing the home together. Your name with go on the offer to purchase, the mortgage and on title. The co-signer is also purchasing the property. You will be responsible for and agree to take on the mortgage payments and property taxes if the primary borrower is unable to make the payments. When it comes to mortgages, a co-signer typically has to meet certain criteria, including having a good credit score, stable income, and a low debt-to-income ratio.

Is it risky?

This is a hard question to answer because every situation is different. Life happens and can be unpredictable. But you know the person you are co-signing for. Do you trust this person to be responsible with this mortgage? You can answer this question better than any mortgage broker, banker or financial planner can.

Co-signing for a mortgage can impact your credit score positively or negatively, as it will appear on your credit report as an outstanding debt obligation. If the primary borrower misses a payment or defaults on the loan, this will negatively impact both the primary borrower's and the co-signer's credit scores.

What is the “exit strategy” for a co-signer?

Getting off a mortgage as a co-signer is an easy enough process and is usually done at the end of the mortgage term (5 year term is standard but can be shorter) or upon the sale of the home. The borrower must qualify on their own to have the co-signer removed or at that time at another co-signer or spouse. Once the original co-signer is removed from the mortgage, land titles can be updated.

Will co-signing effect my purchasing power for future purchases?

This is a great question and one I hear quite often. Yes, co-signing for a mortgage can affect your purchasing power, as it will increase your debt-to-income ratio and potentially decrease the amount of money that you can borrow for future purchases. It is important to discuss your financial future goals and potential future purchases with your mortgage broker prior to co-signing.

Getting Personal…

When I was starting out and looking to purchase my first property with my fiance, we could’nt qualify on our own and my dad agreed to co-sign for us. We could not have done it without him and I will forever be grateful to him for helping us out. When our 5 year term was up, we re-qualified on our own and we were able to remove my dad from the mortgage and title.