“I’m ready to buy a house with my girlfriend, but I’m not buying a house with her father!” That was a client’s response when he understood the meaning of “co-signer.”
The young couple I was working with required a co-signer for their mortgage. Unfortunately, they, like many borrowers, did not understand the meaning of co-signer or appreciate how it would impact their ownership.
The term “co-signer” is often used indiscriminately.
It could mean “guarantor,” which refers to a person who agrees to be responsible for the debt or obligation of another.
If a borrower does not make the required loan payments, the lender can turn to the guarantor for the money.
While this is the definition that many people are familiar with, it is rarely the type of co-signer that lenders demand.
In the current world of mortgages, the term typically refers to a “co-borrower.” When someone lacks sufficient credit history, or has inadequate income to qualify for a loan, a co-borrower can bolster an application to obtain approval.
However, in addition to being responsible for the loan, the co-borrower must also own the property.
This creates estate planning issues, tax consequences, and practical implications that must be addressed before borrowing.
While owning a house with say, your girlfriend’s father, may complicate your life, it will also impact their personal state of affairs.
Co-signing a loan will impact credit and will be a factor when calculating one’s debt-to-income ratio.
It will directly affect the co-signer’s ability to secure additional personal loans.
If you can’t qualify for a loan on your own, and a co-signer is required, don’t expect to be the sole owner of your house.
If you are not prepared to own the house with someone else, think twice before signing an agreement to purchase.
– Elias Metlej is a real estate lawyer with the Halifax firm Blois Nickerson & Bryson. You can write to Elias at askelias@yahoo.com
