Do you need a mortgage co-signer?

Are you a home buyer wondering whether you should enlist the help of a mortgage co-signer? Alternatively, are you considering becoming a co-signer for someone else? Co-signers have grown in popularity over the years, as housing has become more expensive and the market harder to break into. For many people, having a mortgage co-signer is the boost they need to secure their first home. Here’s what you need to know about this role, including the responsibilities and risks involved.

What is the role of a mortgage co-signer?

A mortgage co-signer is exactly what it sounds like! This is someone who is added onto the mortgage for a property alongside the primary home owner. They are signing the same agreement, and are taking on the same responsibilities, even if they don’t actually live in the home. By doing so, they are committing themselves to paying off the mortgage. If the primary borrower cannot make their mortgage payments, a lender will turn to the co-signer to receive payment. The co-signer is then responsible for providing the necessary funds. 

The terms co-signer and guarantor are often used interchangeably, but they have a slight difference. A co-signer is responsible for ensuring every payment is made, and if a single payment is missed, they will be on the hook for covering it. Meanwhile, a guarantor is generally only responsible if a borrower completely defaults on their mortgage. Ultimately, both roles involve a serious financial commitment. However, co-signers are more closely tied to keeping the mortgage in good standing at all times.

Is a gifted down payment the same thing?

People also often think a gifted down payment is the same thing as a mortgage co-signer. It’s important to know these two roles actually have a large difference! You now know that a co-signer is completely committed to the mortgage, and is responsible for its payments throughout the entire life of the mortgage. A gifted down payment, however, is simply a one-time payment from a relative of the home buyer that is meant to cover the buyer’s down payment. Saving the funds necessary to make a down payment can be difficult, and many parents choose to help their children become home owners by covering part, or all, of this cost. This allows new buyers to enter the market faster.

A gifted down payment does not tie a person to the mortgage. The gifter is in no way involved with, or responsible for, the home owner’s agreement. Once the down payment is received, this person takes no further part in protecting the mortgage. Of course, gifting a down payment is still an incredibly generous thing to do! It simply does not have the same responsibilities attached to it, making it a lower-risk way of helping a new buyer.

Who should consider having a mortgage co-signer?

So, who should think about bringing on a mortgage co-signer if possible? Co-signers serve as a huge boost for buyers whose applications may not otherwise be approved. For example, if you have an unsteady income stream, whether due to job changes or seasonal and contract work, a lender may be hesitant to grant you a mortgage. Similarly, if you have a low credit score, a history of missed payments, or a lack of income history, these can all raise red flags for a lender. By adding a mortgage co-signer, this provides lenders with an extra layer of protection and assurance they will be paid. Of course, it’s important to ensure your co-signer is someone who will add credibility to your mortgage application! They should have a strong credit profile, and be able to document a history of income and timely payments.

What are the risks of being a co-signer?

As a co-signer, your responsibilities are clear. If the primary borrower fails to make their payments, a lender will come to you to cover the outstanding balance. You are taking on a huge commitment, and it’s important that you understand how this will affect your finances. For example, it can be trickier to secure your own mortgage financing if you are also on the hook for someone else’s, as a lender might think this is too much of a risk for them to take on. You should think about your own plans for the future before committing to another person’s mortgage. You also need to ensure you are in a strong enough financial position to take on this responsibility! Basically, you should treat this mortgage as your own. 

Being a mortgage co-signer is a very generous thing to do for someone you want to help enter the housing market! However, it’s important to think about your own situation before committing. If you are unsure whether you would be a good fit as a co-signer, or you are wondering whether you need your own co-signer, reaching out to a mortgage broker is a good place to start! We can help you evaluate your situation and determine your next steps.

If you have any questions about your mortgage, give us a call at Centum Home Lenders! You can reach us at 506-854-6847, or get in touch with us here.