Co-Signer vs. Guarantor

It is not unusual for clients, especially in these challenging times, to be requested by a lender to get support for the purchase of a home.  Generally what lenders ask for is a co-signer or guarantor.  These two words are different because they have separate obligations.  I have observed that when economic times are tougher, there are more requests for a co-signer than a guarantor. 

You need to know a co-signer is considered better than a guarantor because a lender typically “seeks strength in an application” using a co-signer.  Here is why:

A guarantor signs a promissory note stating that he or she will support the applicants in case of problems.

A co-signer, on the other hand, is put on title and assumes more responsibility if the applicant(s) have financial problems.

To avoid worry, the lawyer will have the co-signer as a “tenant-in-common” and assigns approximately 1% ownership.  Clearly, the applicants still own the home, but the co-signer holds responsibility as well. 

The “on title” status is what makes a co-signer more significant than a guarantor.

In the future, if/when applicants correct the problem that lead to the request for a co-signer or guarantor, only the co-signer is on title.  In the future, to remove a co-signer from title, the deed must be changed and a fee paid. 

*The above statements are not legally based but outline how lenders treat both forms of support.