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What’s the difference between a co-signer and a guarantor for a mortgage?

We arrange a lot of mortgages for home buyers in Mississauga. In the last five years, housing prices have shot up dramatically for homes in Mississauga and the rest of the Greater Toronto Area. Given skyrocketing home prices and tighter mortgage rules, it’s become increasingly more difficult to obtain approval for a new mortgage. When a mortgage applicant is unable to qualify for financing based on their own financial circumstances, lenders will allow the borrower to leverage the credit worthiness of another individual. Lets see what the subtle yet important difference is between a co-signer and a guarantor.

Co-Signer

When there is poor credit or insufficient income to support a mortgage application, a lender or bank can require an additional individual to join the application process. This is often the case when a young first-time home buyer requires their parents to help them acquire financing. Co-signers are equal partners in the application, and are required to be added on title. Co-signers will have to submit their income verification documents and credit reports in the same manner as the main applicant does.

Co-signers are equally accountable for any mortgage payments, even if they are not expected to be the ones making the mortgage payments. One important rule to note is that current mortgage rules in Canada state that an individual can not co-sign on a CMHC insured mortgage if they already have a CMHC insured mortgage. However, this does not prevent obtaining mortgage insurance through Genworth or Canada Guaranty.

Guarantor

The most significant difference with a guarantor is that the individual is not on title, and does not have any claim to the property.  A guarantor is still financially guaranteeing that the mortgage payments will not go into default.  A guarantor will typically be asked to provide documents to establish their financial strength during the application process.

It’s important to speak to your bank or lender to understand how you will be participating in the mortgage application, as well as to understand the lenders policies when it comes time to releasing yourself from your obligations once the main applicant is able to qualify on their own.

If you’re looking to qualify for a mortgage in Mississauga, we will be happy to talk to you and explain your options!

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