If you're navigating the waters of mortgage financing and find you need a cosignor, there are some things you need to know.
Back when most of my hair was black, clients looking for mortgage financing rarely needed a co-signor or, more popular then, a guarantor.
Over time though, a lot has changed. Property values are five times or more what they were then and of course, rates have increased. More and more of us are self employed and the traditional job market has shrunk.
When I started in finance, it was people in their 20s who needed help, then people in their 30s. Now, in some cases, well I find myself talking to people in their 40s about getting co-signor.
As we get older, having to ask for help becomes a harder pill to swallow but it's not forever.
Here are five things to know if you need a co-signor and five more if you are considering being one:
If you need a co-signor:
1) Most of the time, your co-signor will need to be a family member.
2) In most cases, the co-signor can come off the mortgage and title in 2-3 years.
3) Co-signors need to have an income stream, as they're providing income support for your application.
4) Co-signors provide stronger support to your application than a traditional guarantor.
5) Having adequate new insurance cover that covers the mortgage amount before the mortgage funds is vital. You protect yourselves and your co-signors from further risk in case something happens.
If you are going to be a co-signor:
1) Being a traditional mortgage guarantor - where you only guarantee the balance - isn't really an option any more.
2) You become responsible for the payment stream if the applicants can't pay ( Item#5 should be your back up ).
3) You'll need to go on title. Avoid property transfer tax implications by registering a 1% interest in the property.
4)Because you're going on title, you'll need to sign the offer etc, as well.
5) In order to minimise the risk to everyone, ensure that the primary applicants have new life insurance to cover the mortgage debt in place before the financing completes. It's awful to think about having to be prepared for any eventuality but better to plan for every eventuality.
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