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. 

Mortgage Quiz

I thought I would try and think of a number of questions I often get asked. Hope this helps but if your question wasn’t asked and answered, call or drop by.

a) Can I build a new home on my own? Yes, but not all lenders allow.

b) Can I get financing to buy just land? Generally no, but ask your branch and maybe they will.

c) Do I charge? No, except for “private mortgages”.

d) Once you have had credit problems, does this ever improve? Yes, in fact credit activity is removed after six (6) years with Equifax and seven (7) years with Trans Union Credit.

e) Can I get a mortgage if I went bankrupt? Yes, the minimum you must achieve is two (2) years since you were discharged and one (1) year of re-established credit. Lenders like more than the minimum. Bring in discharge paper and we will review.

f) What is the difference between a co-signer and guarantor? A co-signer is placed on title of the property and is more significant. A guarantor is not on title and plays the role that if the applicant has problems, the guarantor will support the person.

...more questions to come in the future.