Co-signer or Guarantor? Know the difference!

Co-signer or Guarantor? Know the difference!

Imagine this scenario: you are applying for a mortgage and you just found out you will not qualify on your own. So, what to do? Most people start reaching out for any option. Can they get a co-signer? Should they get a guarantor? As mortgage specialists, we would like to say: keep calm. First of all, find out the difference between them as they are two very different things and it is important you understand them both. It is true that they can both help you qualify for a mortgage, but their responsibilities and rights are quite different. 

Basically, a co-signer co-owns the home with the person living in it and paying the mortgage. So, if you purchase a house with a co-signer, you both own the property.  Thus, a co-signer must sign all of the mortgage documents and their name will appear on the title of the property. Since the co-signer legally owns the property as much as the individual paying the mortgage, he/she will be held accountable for ensuring that the payments are made. While it’s usually understood  that the co-signer will not actually be making the payments, it is important that all sides understand that they will require to do so should the original applicant fail to pay the mortgage. A co-signer is usually used when the original applicant has major difficulties getting a mortgage on their own due to income issues. 

A guarantor, on the other hand, has pretty much the same responsibilities but not quite as many rights. As the name indicates, the guarantor’s job is to guarantee that the mortgage payments will be made, even if the applicant fails to do so.  Unlike a co-signer, a guarantor steps in when the original applicant is on the verge of qualifying, but simply needs a small boost to satisfy the lending criteria. Normally, guarantors are in a better financial situation than co-signers. However, their name does not appear on the title of the home, which put in simple terms means that they are responsible for covering the cost of the payments, but do not actually own the home. Normally, the guarantor is needed when the applicant qualifies when it comes to income, but they might have issues with credit. 

Remember: both guarantors and co-signers face some risks that can leave them responsible for a serious amount of debt.  The co-signer is responsible for the entire payment of the loan amount.  Guarantors have a similar responsibility for loans, but they only become liable for the loan once a lender has tried and failed to collect from the primary borrower through all reasonable means of recourse. Once the original applicant qualifies under their own merit, a guarantor or co-signer can then be removed. An advantage therefore of a guarantor is that they are not on title, so there is less paperwork associated with this transition.

Always remember to discuss any issue you may have with a mortgage professional who can explain the advantages and disadvantages of all financial options.