Are you or a client considering co-signing on a mortgage and have questions?
There tends to be some confusion about what it actually means to co-sign on a mortgage and you know that where there is confusion, we are here to offer you some clarity.. Let’s take a quick look at what you need to know before, during, and after the co-signing process.
What can you expect?
You will be required to complete an application and have your credit bureau pulled. As you are now considered a borrower, the bank or mortgage broker will ask you for all the documentation that the main applicant has already provided. This can include but will not be limited to:
- Letter of employment
- 2 years Notice of Assessments, Financial Statements and complete T1 Generals ➔ Mortgage statements on all properties you own along with property tax statements ➔ Bank statements (if helping with the down payment)
- Lease agreements on properties you own (if applicable)
- Divorce/separation agreement (if applicable)
What do you need to be aware of?
- This is now a monthly liability according to the world. You will have to disclose this debt on all your own applications going forward. It could affect your ability to borrow in the future.
- Each lender is different in their policy as to how soon you can come off the mortgage. Familiarize yourself with this. Be sure to select a shorter term if this is only a short term fix to ensure you avoid penalties from breaking a term early.
- The main applicant will need to be able to apply and be approved on their own in order for you to be removed as a co-signer. Are you committing to this indefinitely or only for a couple of years?
- Mortgages report on the credit bureaus so you could be adversely affected if there are late payments.
- If the main applicant cannot make the payment for whatever reason, by co-signing, you are saying that you will. Make sure your budget can handle that for a few months if a situation arose where you need to step in to make the required payments.
Things you may want to consider if you do agree to co-sign:
- Ask for an annual statement to be sent to you as well on both the mortgage and the property taxes.
- Consider a joint account for mortgage payments so that you can check in every so often to ensure all payments are being made on time.
- Talk about life insurance! If the worst occurs, then at least have enough of a policy in effect, with yourself as the beneficiary, to cover a year of mortgage, taxes and bills so that you are not hit with an unexpected series of expenses until the property sells.