Unable to qualify for your dream home purchase? Adding co-signers may be the solution for you. Co-signers can add strength in income, credit, net worth and improve your ability to qualify.
What is co-signing?
This is an agreement that both parties will sign on the mortgage and title of the home. People may need a co-signer if their income, credit score, or debt prevents them from qualifying on their own. The co-signer must have good credit, financial stability or a general high net worth.
*When adding a co-signer your realtor must add them to the purchase contract
Co-signing vs Guarantor
If you as the co-signer want less risk and responsibility, there is the option to be a guarantor instead. This is for situations where the primary borrower is in a stronger financial position but needs a slight boost to qualify for the mortgage. A guarantor does not have their name on the title of the home. With a guarantor vs a co-signer, there are requirements that must be met by the primary applicants (primary buyers) its best to speak with a mortgage broker if this is an option for you.
What are the risks of being a co-signer?
As a co-signer you will share the responsibility of repaying the loan if the primary borrower is unable to, but if the borrower is able to pay there are benefits such as your credit score improving. It's important to be aware that as the co-signer this mortgage will show up on your credit and could impact you in qualifying for additional loans. Overall, this is still a great option to help family, but the co-signer must be aware that this can impact your credit score and financial situation.
Example:
You want to buy a home a townhouse for $750,000, you have a 5% downpayment saved and additional funds for closing costs. However, you make $80,000/year. Given the qualifying rules, you may not currently qualify for this size purchase. However, Mom and Dad have little to no debt, excellent pensions, and ample savings/investments. They would make great co-signers in order to help you qualify. So as long as you are comfortable with your monthly mortgage payments, strata, and property taxes this would be a solution to consider. You have the option to remove co-signers once you qualify for the mortgage on your own.
Co-signers will have to also complete a mortgage application past minimum credit score requirements and provide supporting documentation.
Important Note For Self-Employed Individuals
Many self-employed individuals technically show less income than what they actually make. This is usually due to business write-offs and other expenses. In cases like these co-signers are another great way to improve your qualifying abilities. We can run scenarios to see what net income you need to show in order to prepare to remove your co-signers in the future. We can also adjust the term of the mortgage or pick a specific rate (variable vs. Fixed) to line up with the removal of co-signers and save on penalty fees.
Obtaining a mortgage can be challenging for some, we want to help you weigh through all the options. Contact Browne Mortgage today and get professional advice now!