A helping hand?

In some mortgage transactions, a little extra help is needed to get the deal done. Sometimes, the applicant is fresh out of school and has little work history. Other times, there has been blemished credit and the lender needs a bit more security on the loan. These are just two examples of when a co-signer or guarantor might come into play.

What’s the difference between these two? Quite a bit, actually.

A co-signer is registered on title and has an interest in the subject property. Payments are typically made by the primary applicant. A co-signer is somewhat of a co-owner.

A guarantor is a little different; first, they are not registered on title, so they have no claim on the property. Secondly, the guarantor personally guarantees payments if the primary applicant defaults.

So, with a guarantor then, we have more responsibility for the property but less, if any, claim to it. It is for this reason that anyone wishing to be a guarantor for a transaction must consult legal council before proceeding.

In most cases, we see guarantors involoved with young buyers who either haven’t been working long enough or don’t have enough established credit. Typically, it is a parent helping out one of their kids. Depending on the payment history, income and education level of the primary applicant, a guarantor could be released from obligation within a year. However, this varies situation to situation, lender to lender. Co-signers, on the other hand, must go through a legal process to be removed from title, and like 99.9%  of all legal processes, fees are involved.