Could You Benefit from a Co-Signer on Your Mortgage?

ByLuke Wile

Posted in Mortgage News:

Getting approved for a mortgage in Canada isn’t always straightforward. If you’re facing challenges with income, credit, or passing the mortgage stress test, having a co-signer could be the boost you need.

Here’s a closer look at how co-signing works, when it makes sense, and what you should consider before moving forward.

What Does It Mean When Someone Co-Signs a Mortgage?

Basically, when a person co-signs your mortgage, they’re entering into an agreement to make the mortgage payments on your behalf, should you not be able to for any reason; together you share the responsibility of the mortgage. While there are risks involved, if you select your co-signer well – and most choose a family member – and both parties uphold their end of the agreement, it can be helpful in some circumstances.

Why Might Someone Need a Co-Signer?

There are several situations where having a co-signer can help you get approved for a mortgage:

  • Increased borrowing power – Adding a co-signer’s income to your application may help you qualify for a larger loan.
  • Stress test challenges – Canada’s mortgage stress test can be tough to pass on your own. A cosigner’s income can help meet the required ratios.
  • Poor or limited credit history – If your credit score is lower than most lenders require, having a co-signer with strong credit can improve your chances of approval.

Keep in mind: the co-signer’s existing financial obligations (like debts or other loans) are also factored into the lender’s decision. So ideally, they should be in a solid financial position themselves.

Who Makes a Good Co-Signer?

First-time homebuyers often turn to a parent or close relative. This can work especially well if that person is still earning steady income, has minimal debt, and a good credit profile.

A reliable co-signer should be:Financially stable

  • Financially stable
  • Creditworthy
  • Someone you trust and can communicate with openly

How Are Co-Signers Different From Guarantors?

The two are similar, but they do have some important differences:

  • With a co-signer, their name must appear on the title, while a guarantor’s does not. This means that the co-signer may be required to pay some of the land transfer taxes, and if you’re buying your first home, you may lose part of the first-time buyer rebate.
  • Guarantor’s do not own any part of the property, whereas the co-signer does.
  • Co-signers are typically used for individuals with poor credit, while those with decent credit seeking to boost their maximum purchase price, may use a guarantor.

What You Should Know About Co-Signing

Whether you’re thinking of asking someone to co-sign, or considering doing it for a family member, here are a few important things to keep in mind:

  • The co-signer must be financially able — and willing — to take over mortgage payments if necessary.
  • Missed payments can impact both parties’ credit scores.
  • Acting as a co-signer could affect the co-signer’s own borrowing power — for example, if they plan to apply for a loan or mortgage in the future.

Co-signing can be a powerful way to help a loved one buy a home, but it’s not a decision to take lightly.

There’s real responsibility involved, and it’s important that everyone fully understands the risks and expectations.

If you’re considering a co-signer arrangement, we’re here to help. At Red Key Mortgage Group, we work with buyers and co-signers across Alberta to structure mortgage solutions that work for everyone involved.

Call us today at 403-460-7707 or Contact Us to explore your options and get expert advice tailored to your situation.