New mortgage rules = Co-signer required!
Recently, we have noticed an increase in the number of inquiries about co-signing a mortgage. So, the question is, what exactly does it mean to be a co-signer?
And why are we being asked this question so often? We say due to significant government mandated rule changes to mortgages and there have been quite a few over the last few years! I see the increase in requests for a co-signer are mostly due to the maximum mortgage amount one wants to qualify for. Other reasons might be credit issues or limited job stability.
The ‘stress test’ seems to be the common concern with most borrowers. Whether you are borrowing less than 20% or more than 20% of the homes value or purchase price, you must now qualify at a higher rate of interest than what you are actually going to pay on your mortgage, regardless of what term you choose. The major impact of this change is decreased affordability for many which means having to buy a less expensive house or look for a co-signer to increase how much home you can qualify for.
When considering becoming a co-signer, questions need to be asked. The most important one being, what is the eventual exit strategy for you from this joint mortgage at some time in the future?
What can you expect going forward? You are now applying for a mortgage and will be required to complete a full application and have your credit checked. As you are now considered to be a borrower, the lender will ask you for all paper work to support what you have disclosed on your credit application.
Document requests could include the following: Letter of employment and current paystub, last 2 years of financial statements if you are self-employed, last 2 years of personal income tax returns and corresponding Notice of Assessments. If you own property, mortgage statements, property tax bills and lease agreements will be requested. Even more documentation will be required if you are divorced or separated.
As you can see, it is not just a matter of saying “yes”. Once the mortgage approval is signed and all lender conditions have been met, you will then have to also meet with the lawyer who is registering the new mortgage.
What else do you need to be aware of?
- You now have a new debt and will have to report it every time you want to apply for credit which could affect your ability to borrow in the future
- How soon can you come off the mortgage? Find out what you are committing to and if this is to last indefinitely or only for a couple of years?
- Mortgages now report on credit bureaus so you could be adversely affected if there are late payments made by the main borrower
- If the applicant who is occupying the property cannot make the payments, you are 100% responsible to make them. Is your budget prepared for a possible extra financial outlay?
If you do agree to co-sign how will you monitor this?
- Ask for annual statements to be sent to you as well as the main borrower for both the mortgage and the property taxes.
- Consider a joint account for mortgage payments so you can check in every so often to ensure all payments are being made on time
- Talk about life insurance. If the worst occurs, have a policy in effect with yourself as the beneficiary which would at the very least, cover a year of mortgage and property taxes so you are not hit with an unexpected series of expenses until the property sells.
Helping your loved ones realize their dreams of home ownership is great but do know exactly what you are getting into.
If you want to work with an experienced Mortgage Professional who will provide honest and accurate feedback about you as a borrower you should contact the MortgageGirl today! Former banker turned Mortgage Broker with over 35 years of experience. #benefitfromexperience #askquestionsgetanswers Email – info@mortgagegirl.ca Call – 780-433-8412 and Visit the Mortgagegirl website. Follow her on Facebook and Twitter