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Feb 28, 2021 | Mortgages | 0 comments

Co-signing a mortgage

Mortgages | 0 comments

Often, when you’re purchasing your first home and in a networth “building” stage of life, you need a “co-signer” to secure your mortgage loan.

What is co-signing a mortgage loan?

Co-signing a mortgage means that someone is taking joint responsibility for your mortgage. Typical co-signers are parents, siblings and grandparents, but periodically a friend co-signs for a colleague that needs some help with their loan. Co-signing a mortgage is no joke, the co-signer is required to provide all of their income and net worth documentation and will also be required to provide details on any homes that they may own. If the principal borrower (you) defaults on the mortgage loan, they co-signer will be responsible for making the monthly payments to the lender.

Should you be a co-signer?

Whether or not to co-sign is really a personal choice.  You have to remember that co-signing a mortgage loan is the same thing as obtaining a new mortgage yourself.  This mortgage will show up on your credit bureau and decrease the amount of money you can borrow yourself for future purchases.  There will be a hard hit on your credit score and you’re really tying yourself to another borrower until such time that the primary borrower can qualify on their own and remove you from the mortgage.  What questions should you ask yourself before you cosign a mortgage loan?1. Do you have any need to purchase a home or a car for yourself in the near future? 2. Do you trust that the primary borrower will make their mortgage payments on time? 3. Do you need to open a shared bank account with the primary borrower so that you can see what has been paid?4. Are you giving up your status as a “first time home buyer” by cosigning for someone else’s loan? 5.  What will change for the primary borrower in the coming years?  Will their net worth or income increase enough for you to be removed from the loan?

Overall, cosigning a mortgage is a serious commitment and it shouldn’t be taken lightly. Careful research and consideration should go into making the best decision for you. Lean on your mortgage broker to help you navigate this decision.


Why would you need a co-signer?

There are a variety of reasons that borrowers need a co-signer. To purchase a single family home in Calgary, a borrower needs about $80,000 in household income. Many new borrowers don’t have income as high as $80,000 at the beginning of their career. In the case, a family member with strong income might co-sign the file. Next, the borrower might have a lack of credit history, or a low score due to some previous credit hiccups. As such, it might make sense for a strong co-signer, with established credit, to go on the mortgage file and help “legitimize” the primary borrowers credit background.

How to be a co-signer?

Co-signing a mortgage loan involves going through the exact same process that you would go through if you were obtaining a new mortgage for yourself. The qualifications for being a strong co-borrower are strong income, lower debt loads and strong credit score. 

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