When times are tough, people often look to family and friends for help. And there’s no shame in that—we’ve all been there. These are the people we trust and value the most to help get us through life’s biggest challenges.
Applying for a mortgage can be one of those challenges. As the costs of houses rise, homebuyers are struggling to afford their dream home. Pair that with low cash savings, fluctuating employment, and zero credit history to lessen your chances of getting approved for a mortgage on your own.
Enter the co-signer. The person who can step in and sign their life away to get someone else approved for a loan. Being asked to be a co-signer is a huge deal, so here are a few quick facts you need to know about co-signing for a mortgage.
What Does Co-Signing a Mortgage Involve?
When you cosign, what you’re really doing is agreeing to make the monthly payments if the primary applicant defaults. It’s like being a co-borrower and with that comes responsibilities that are equal to the main applicant. The co-signer must sign all the mortgage documents making them part owner of the home and their name will be on the title of the house alongside the primary applicant.
You can see how this can be risky. You certainly don’t want to be co-borrowing for just anybody. In fact, even co-signing for friends is often discouraged. Most co-signers stay within the immediate family—parents signing for children, children signing for parents, or siblings for one another.
Be careful who you co-sign for. When you sign mortgage documents, either as primary borrower or co-borrower, you become 100% responsible for the payments. If the person you’ve co-signed for misses payments for any reason, you become liable for making payments on their behalf.
What Happens to Your Credit When You Co-Sign a Mortgage?
If the primary lender and the co-signer default on payments, it will affect both of your credit scores. When payments aren’t being made, the lender will most likely send the file to collections to recover payment. This can include getting a judgement in court, a garnishment of your wages, or in extreme cases, they could even try to fight for your property or assets to pay for their losses.
Mortgage Debt Counts Against Your Available Credit
Since you’re the one responsible for making payments if the primary borrower defaults, the lender will need to account for this in the amount of credit you have available.
Simply put, co-signing a mortgage will use up a sizable chunk of your available credit. All the debt of the co-signed mortgage will be held against both you and the primary applicant for the length of the term and will be included in debt service ratios.
This will greatly affect the amount of money you can borrow in the future, especially if you ever want to purchase another home.
Not Everyone Can Co-Sign a Mortgage
Lenders will look at two things when considering a co-signer: income and credit history. Having a higher net worth or home equity is just a bonus and won’t count for much if there isn’t a regular stream of income coming in, or if the co-signer has a lower credit score.
The lender’s main focus is on making sure that the co-signer can make payments in full if the primary applicant can’t.
Your Name May Stay on the Mortgage for Its Entire Term
There’s a general misunderstanding that a co-signer can have their name removed from the mortgage documents once the first term is complete. While this is a possibility, it isn’t necessarily true.
After the initial term, the primary applicant can re-apply for the mortgage solely in their name. If they qualify, the co-signer’s name will be removed from the mortgage and all existing documents. They’ll no longer be part owner of the home and their name will be taken off the title of the house.
In cases where the primary applicant doesn’t get approved, the co-signer’s name will remain on the mortgage until the original applicant is able to get approved on their own—if they ever do.
Should You Co-Sign for a Mortgage?
It’s easy to see that it’s more than just your credit on the line here. Co-signing a mortgage is a tough decision that shouldn’t be taken lightly. Just because you can, doesn’t always mean you should.
You’re not just doing someone a favor, you’re taking 100% responsibility for their debt if they default, whether they fail to make their payments by choice or not—it will all fall on you in the end. Before you sign anything, be sure you’re ready for that kind of commitment.
Are you hesitant about co-signing for someone or not sure if you need a co-signer?
If you’re looking for some guidance through this intimidating process—I can help. Get in touch with me today and I’ll be happy to answer all your questions and explore your options.
Hi, I’m Joel, a real estate professional based in Toronto.
My approach is simple—I put you first. I believe in open communication, total transparency, and meaningful results. I’ll guide you through the real estate process, market values, and always keep the focus on you—and your needs.