October 11, 2019 Kristen Godel

Co-signer. Good or bad idea?

Finding a co-signer for your mortgage approval can’t possibly be a bad idea if it helps you achieve your goal, and if the co-signer is aware of the benefits/risks associated. Though a rare privilege, co-signers and mortgage applications have never been more popular, mostly as a result of tightened regulations which lower affordability across the board.

There are more ‘risks’ perceived from the co-signer themselves than the actual buyers. Most importantly, a co-signer is entrusting their personal financial details with the borrower(s) and are dependant on the borrower(s) to maintain timely payments. If you are co-signing, or are borrowing with the need for a co-signer, here are some topics to consider discussing together; personal tax and estate position, disability insurance for the mortgage, future capital gains tax, land transfer tax rebates, short/long term ownership plans.

A co-signer can help solve two very common complications when applying for a mortgage:
1. A co-signer with strong credit can dramatically increase the likelihood an approval when the main borrower(s) has what is considered ‘thin credit’. Thin credit is not to be confused with poor credit. Thing credit is usually the result of shorter credit tenure or minimal trades.
2. A co-signer can also help increase the affordability of the application by using their income to help qualify. Since affordability is directly tie to debt servicing, the more income the application to qualify, the higher the approval.

(Though tied to #2, a possible third benefit could be a co-signer with tenured, ‘employed’ income. This could come is handy when main applicants are business-for-self or relatively new at their jobs. This brings financial stability to the application where neither credit nor amount of income are problematic)

Overall, a co-signer if a great option for boosting your chances of approval. Again, though a privilege, it’s an options worth exploring if credit is thin or debt servicing is tight and be the real difference between a decline and approval. Just bear in mind that all co-signers will have their own borrowing profile and as such, each application is very much a case by case basis. Run your scenario by us and we’ll advise of the best course of action.

For more information, don’t hesitate to reach out to us today! (905) 455-5005.