A buyer applying for a mortgage loan(link) but isn’t successful due to poor credit, employment history, lack of down payment or income – most lenders will consider lending if there is someone to act as co-signor or guarantor for a mortgage. Be aware though that the two options have different requirements and it is important to know which is best.
A co-signor is basically a co-owner – he/she is registered on the title and is equally responsible for payments (although it’s often a given that the co-signor will not make the payments).
A Guarantor, on the other hand, personally guarantees payments will be made if the original applicant defaults, but he has no claim to the property because he/she is not on title.
Lenders require a co-signor or guarantor for a mortgage for different reasons. A co-signor is used when you need to support income. If the original applicant’s qualifying ratio doesn’t meet the lender’s standards, a co-signor is require to bridge the income gap. A co-signor, because their name is also on the title, must sign all of the mortgage documents and can expect to remain title until the applicant qualifies for the mortgage on his or her own. Or, in the case of two spouses, the co-signor might remain on title indefinitely. Keep in mind that removing someone from the title involves legal fees.
A guarantor is usually called upon if the applicant qualifies by income, but has a slight credit blemish or has yet to establish credit. It’s also an option for couples where one spouse is an entrepreneur and they don’t want to risk losing the house should the business go bankrupt – they simply keep that person’s name off the mortgage.
A guarantor has to be stronger financially than a co-signor because they promise to carry the entire debt should the homeowner default.
Read more: https://dominionlending.ca/news/co-signor-or-guarantor-for-a-mortgage/
