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(August 12, 2021)

Intro (pre-amble): up to 15:23 mark of podcast

With real estate prices soaring across the country many applicants are seeking assistance when it comes to qualifying for a mortgage. More commonly, the assistance comes in the form of gifted down payments from the Bank of Mom & Dad, but coming in a close second these days is the addition of applicants to help combat the rigid income qualification criteria. You have likely heard of the term, Co-Signer. This is the 11th hour addition to a mortgage application (usually mom or dad) that gives the qualification effort that extra little boost required to get the main applicants over the hump. But what many people don’t know is that there are two types of co-applicants and various conditions and characteristics associated with each one; a Co-Signer and a Guarantor. Here are the distinguishing factors of both:

Key Characteristics of a Guarantor:

Guarantors are usually added to an application when the main applicants can sufficiently qualify based on their income, but instead have some problematic credit issues or a recent credit derogatory that has hindered their overall credit score
a guarantor would be added to the application, but would not have the same property rights as the main applicants. They would not be added to the land title and would therefore not be linked with the property in any way.
It is unclear as to whether lenders report the mortgage on the Guarantor’s credit report…some lenders do, others don’t. This could therefore become an issue if the Guarantor is planning on purchasing more real estate (with the assistance of a mortgage). Always inquire with the lender regarding their policy on credit reporting for Guarantors.
However, as they are added to the mortgage, they are therefore liable should the main applicants default on the payments. In the event that the main applicants could no longer make the mortgage payments, the lender could very well come after the guarantor

Key Characteristics of a Co-Signer:

Co-Signers are added to an application when the main applicants require additional income to qualify for the mortgage (as opposed to Guarantors who come on to an application to basically vouch for the main applicant due to a past credit issue, but are good on the their own income to qualify)
as with Guarantors, Co-Signers assume liability in the event of mortgage payment defaults
However, unlike Guarantors, Co-Signers inherit property rights along with the main applicants (they are required to be on land title)
Co-Signers can definitely expect their name on the land title of the subject property and also a line item facility reporting in their credit report for the full mortgage amount liability

Other Key Points:

Co-Signers are impacted from future mortgage qualifications by co-signing on a mortgage (their borrowing power will decrease as long as they are on the application…check with your mortgage provider to discuss the extent of your diminished borrowing power). Guarantors could also be affected in the same manner (depending on whether the lender chooses to report to the Guarantors credit bureau)
almost all lenders allow for Co-Signers, but fewer allow for Guarantors. Don’t assume that the lender you are currently with allows for Guranators…find out ahead of time in case you are quickly required to pivot
As Co-Signers are required to be on title of the mortgaged property, they could (however) set their percentage of overall ownership. For example, let’s say a father co-signs for his son on a mortgage. In British Columbia, they could allocate 1% ownership to the father and 99% to the son (or whatever ratio of ownership they decide on). The ownership ratio could also be applied in order to salvage (or maximize) the main applicant’s first time home owner privileges and rebates. Inquire with your provincial jurisdiction regarding the ability to modify the ratio of property ownership.
Reasons to be a Guarantor:
- to avoid potential tax consequences (one may not want to be on title of the property so as to avoid a potential capital gains tax upon the sale of it)
- Being on title can also result in potential estate planning issues (if a property holder dies, things could potentially get complicated).
- I’m just skimming the surface on these scenarios and am not a tax expert, so be sure to consult with your Lawyer or Accountant to fully understand all potential tax AND legal consequences.

How to remove a CO-SIGNER and GUARANTOR: both a Co-Signer and Guarantor can be removed from a mortgage (and land title) as soon as the main applicants can officially qualify on their own merit. This could occur at any time throughout the life cycle of the mortgage and as early as 30 days after the mortgage is officially secured (completion date). The main applicants would have to provide updated income documents (or updated credit pulls) to confirm that they can fulfill the qualification criteria on their own merit. One this is confirmed with the lender, the lender re-instructs the mortgage to the solicitor to renew registration with the land titles office, thereby removing the Co-Signer from title.