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In the process of getting a mortgage, or any secured loan, you may be asked to get a Co-Signor or Guarantor.  They sound like the same thing but they have 1 very distinct difference.  A Co-signor, also known as a Co-borrower, are also considered to be a co-owner.  They are registered on the title of the property being borrowed against.  A Guarantor is not an owner and has no entitlement to the property.  Their similarity lies in that they are both responsible for the debt on the property if the Borrower is unable to pay.
A Co-signor is most often used when an applicant is unable to qualify for a mortgage, based on their income or credit.  In reality, the applicant may be able to pay the mortgage on their own but on paper it doesn’t look like they can.  This could be because they have unverifiable income such as tips or self-employment income.  They could also have poor credit due to lack of established credit or poor repayment history.  A co-signor needs to have good income and strong credit.  A full application and verification of income are required for Co-signors.
A Guarantor is generally called upon when an applicant can qualify on their own to pay the mortgage, however their credit or income are thin.  What we mean by this is it maybe someone trying to purchase their first home and they have only had credit established with a car loan for 1 year and 1 credit card for 18 months.  Or maybe they have just graduated university and just started a full time salaried position in their field making good money but have only had the job a short term.  Guarantor’s are required to do a full application with income verification, just like the applicant.
The Basics:

  • A Co-signor is part owner of the property, may or may not live in the property and is responsible for the debt repayment.
  • A Guarantor is responsible for the debt repayment if the borrower (applicant) is unable to pay but has no benefits of owning any part of the property.

Whether you are a co-signor or a guarantor for someone’s mortgage, it will affect your ability to borrow money yourself.  Since you are responsible for the debt, it will be factored into how much you would qualify for on your own.
If you have questions or would like further clarification, please contact us to review.