Sometimes you just can’t get what you want. Despite pushing every aspect of your financial health to the absolute limit, you still don’t qualify to get a mortgage. That’s when you understand that you can’t do it alone — and that’s when the guarantor mortgage can save you out.
What’s the very first feeling you get when you see denial on a mortgage? Yes, it’s panic. Disappointment, losing hope, trying to bargain something good out of it… but the very first thing is panic. You expected approval! Even though you did the very best you could do alone, sometimes, you just can’t do things by yourself.
You need help — and under current Canada’s laws, one of the ways to get it is to turn your conventional mortgage into a guarantor mortgage.
What Does Guarantor Mean?
Simply put, a mortgage guarantor is a person who deals with your financial record as if he or she were you. A guarantor shares some of your burdens and makes it easier for the loan company to approve your application.
For example, if you have no steady income or poor credit record, a guarantor can help you out with his personal salary and credit history.
Who Can Be Your Mortgage Guarantor?
Practically, it can be anyone that you trust (and even more importantly — someone who trusts you):
- One of your parents;
- Friend;
- Spouse;
- Family friend;
- A colleague (if you’re really close, though).
You can ask anyone to be your mortgage guarantor, but it’s a risky role, so not everyone will agree.
Risks of a Guarantor Mortgage?
There are plenty — and this is why you’ll either find a trusted person in your circle OR will have to pay a huge sum of money:
- It’s a stressful role for both of you. You share your financial health with someone. That’s never easy. Any kind of disagreement between you and the guarantor can become a problem for all of you — for him, for you, for your loan company. And that means stress;
- There are losses that can happen to the guarantor if he or she breaks the deal or sends in wrong documents to your loan company. This is a great reason for a guarantor to be a close friend of yours;
- A guarantor’s credit history is checked by the financial institution. If he or she has a bad credit history, it can lower your chances of getting a mortgage;
- Probably the most important risk: a guarantor gets responsibility for your financial health. If something happens to you, the guarantor might have to pay your mortgage or sell his assets to cover your debt;
Now that you understand the basics — let’s sum it up and dive a bit deeper:
In a traditional mortgage, you are the only one responsible for your payments. In a guarantor mortgage, a person of your choice — a mortgage guarantor — shares the risks with you.
Benefits of a Guarantor Mortgage
it wouldn’t exist if there were no advantages, right? Here are some of them (even though there are not many):
- You can get a mortgage any time you want to, with the right documents, even if your financial situation is far from perfect;
- You can save money on interest by working with your guarantor;
- The guarantor will lower your chances of getting rejected and damaging your credit history;
- It’s actually easier to get a mortgage with a guarantor.
In short, it’s a last-resort measure for those who are either AFRAID of getting denial on their mortgage application or KNOW that their application got denied.
Who Can Qualify to Be a Mortgage Guarantor?
Your guarantor needs to:
- Be a permanent resident of Canada;
- Have a good income;
- Have a good credit history;
- Have no history of bankruptcy or legal charges;
- Be in a stable, high-paying position at their job;
- Be at least 18 years old and younger than at least 75 years old (the upper limit, however, is not strict).
Of course, legal requirements should not be the only decision-making point for you. Even your boss or your mom’s school friend from Vancouver can qualify. There are some extra, personal requirements that we recommend checking:
Your RELIABLE mortgage guarantor also needs to be:
- In a good health in general;
- A CLOSE friend, family member, or a colleague, since trust is crucial here;
- In your circle for at least 3-5 years;
- Not a drinker, not a criminal, not a… well, drugs enthusiast;
- Someone you know personally — and know well;
- And most importantly — someone who genuinely wants to help you, not for a financial gain of any sort.
The circle got way narrower, right? Think of those who are still in it — maybe it’s worth giving them a friendly call even if you’re not getting a mortgage right now?
Guarantor Mortgage — Extra Responsibilities for Both
So you found a person who qualifies to be your mortgage guarantor. Now what?
Think about the responsibilities from BOTH points of view.
Things to consider — for you:
- You can’t change him/her on the way. If they want to withdraw from the deal, they can’t — their credit history is involved after all;
- You should clarify all the details of the mortgage agreement to them — and you should make them as clear as possible;
- You’re responsible for THEIR financial health as well now — better think twice before doing anything stupid that can cost you an ability to pay for your guarantor mortgage.
And things to consider — for them:
- A guarantor should be honest and should not be involved in other activities that could influence his credit score or income level;
- A guarantor should be ready to pay or sell their assets if necessary. That’s why it’s crucial to find a reliable person who has every legal right to do that;
- The financial records of your guarantor affect your mortgage application as well. Maybe that’s the right time to finally check the credit history BEFORE applying and avoid doing things blindly.
Yes, it might be a whole set of tough questions and a set of unwelcomed responsibilities, but that’s the way a guarantor mortgage works. O course — you always have a different option.
Guarantor vs Co-signer?
Both sign the mortgage contract with you, but there’s a huge difference between the two:
- A guarantor does NOT appear on the title of the property. A co-signer does;
- A guarantor does NOT own the property. A co-signer DOES own it on the same rights as you, main borrower;
- A guarantor doesn’t OWE anything to the bank unless you fail to pay for your mortgage. A co-signer DOES owe the bank and should make their payments (while practically, pretty much every bank nowadays understands that you pay for both);
- A guarantor can be just a small boost in the eyes of a bank that can help YOU to get approval. A co-signer is a full-scale participant of the agreement, so their role basically weighs more;
- And finally, a guarantor usually undergoes just a “soft”, surface credit history check. it won’t even appear on their credit history, A co-signer will have to undergo a full-scale mortgage underwriter check, which means that they’ll need more documents and better financial health in general.
To simplify the thing, a mortgage guarantor is a friend you ask to “tell the bank that you’re a good guy and if something happens to you they will pay your debt”. With a co-signer, from the bank’s perspective, the whole thing looks like you two will share both the property, the mortgage payments, and all the responsibilities.
A person that you may pick to be your co-signer should have even MORE trust in your eyes since it’s a major possibility for a scam.
Conclusion
As you see, a guarantor mortgage is NOT a piece of cake. It’s legitimately hard to find a guarantor (or a co-signer) that will agree to share your debt or pay everything instead of you in case something happens to you. It’s not easy at all, but if it’s your only chance to get a mortgage — it’s worth it.