In the mortgage world, a “guarantor” is someone who guarantees the mortgage on behalf of the mortgage holder in the case that the mortgage holder cannot pay back the loan.
Typically, a guarantor is used in a situation where the buyer has damaged or poor credit history or they lack sufficient income to qualify for the value of the loan. Adding a guarantor can help get these types of files approved as this allows the lender to know they will be paid back should the mortgage holder default.
*It is important to note that a guarantor is not the same as a co-signer.
Below are some key facts about guarantors and what makes them different from a co-signer:
- The guarantor must be a spouse or immediate family member. This is not necessary for a co-signer who could be a friend or distant family member.
- A guarantor typically does not have their name on the title of the property but it will be on a mortgage. In the case of a co-signer, the name is typically on both the title of the property AND the loan.
- Guarantors cannot qualify for their own mortgage or large loans if they are responsible for guaranteeing a different loan.
There is heightened risk on the side of the guarantor as they are responsible for the entire amount of the loan should the borrower default. In order to qualify, they must meet the requirements for credit check, income, liabilities and assets. Any potential guarantor should seek legal advice before signing for the loan to ensure they understand the contract.
Whether you want to be a guarantor for someone else’s mortgage, or you need one for your own, be sure to talk to your DLC Mortgage Expert before making any decisions. Your mortgage professional can help you review your options and explain the terms of the agreement or simply answer any questions you may have.
This post was originally posted on the Dominion Lending Centres ‘Our House’ blog, the original post can be found here.
Ready to start your mortgage financing process? Book a meeting with one of our heroes today to get started!