Do I Need a Guarantor?
October 30, 2012 | Posted by: Laurie Anne Faulkner
Do I Need A Guarantor or Co-Signor?
Some times when you are ready to buy a home, certain factors will get in your way- maybe you don’t have enough income to qualify for a property in the price range you want to purchase in or you have other debt (student loans, car payments etc…) that make it hard for your to qualify under the lenders debt servicing ratio criteria. If this is the case, some lenders will allow a guarantor or co-signor to come on board with the mortgage. This reduces the risk for the lender and enable you to move forward with your home purchase.
A guarantor must added to the original application and must qualify to carry the debt as well. The guarantor can choose to be on title (co-signer) or not. If you think you will need a guarantor and have someone willing to support you in purchasing a home this way, please feel free to have them call me with any questions regarding their obligations and responsibilities in regards to the new mortgage -
What is a Guarantor? A guarantor may facilitate the ability of a primary applicant to more easily qualify for a mortgage loan. This is accomplished by effectively combining the assets, income and liabilities of both guarantor and applicant and reviewing the application as a whole.
Guarantors’ Responsibilities All applicants to a mortgage loan, whether they are the primary applicant or the guarantor, are equally and jointly liable for the loan. The lender will not differentiate a portion of the loan to one applicant but not another. If the primary applicant does not make the loan payment, the guarantor will be expected to do so.
Guarantors and the Registration of Title As a rule a guarantor is signing onto a mortgage but is not on title. Otherwise the guarantor would become a co-applicant to the mortgage. There are certain circumstances when a lender may require the guarantor to go on title, such as when the down payment to a purchase is coming from the guarantor, or if the strength of the primary applicant is such that the lender requires the added security of the guarantor being a stakeholder to the property.
Registration of Title Guarantors are often concerned as to the tax implications of going on title. While a discussion as to the tax implications is not within the scope of this information sheet, issues arising from going on title can be minimized by way of registering the title as “tenants-in-common” with the guarantor having a token (ie: 1%) interest in the property. The guarantor is still a stakeholder to the property and must sign for any future encumbrances that may be registered against the property.
Guarantors and Their Privacy An application for mortgage financing involving multiple applicants is regarded by the lender as a joint application. The application is considered as a whole, not by its parts. The mortgage approval and corresponding commitment letter will reference conditions precedent to funding for all applicants. It is because of this that the privacy of each applicant cannot be assured in regards to the other applicants. While we make every reasonable effort to respect your privacy, it is impossible to guarantee that applicants’ personal information will not be referenced within the conditions of a mortgage approval.
Independent Legal Advice The lender may require that the guarantor receive independent legal advice under certain circumstances. Situations where a guarantor is committing to a mortgage loan that the guarantor is not receiving any benefit from may trigger this requirement as the lender wants to ensure the guarantor is aware of the implications associated with their commitment. Independent legal advice would be provided by a lawyer independent to the lawyer representing the primary applicant and would be at a nominal extra cost.
Required Documentation The strength of a guarantor’s application is reviewed in the same manner as that of the primary applicant. It is therefore necessary to support a guarantor’s application in the same manner. The lender will ask for supporting documentation appropriate to their adjudication of the mortgage application.
The following documentation is typically requested by a lender in the processing of a mortgage application. Your mortgage broker can assist you in assembling these documents:
- Employment and income verification. For self-employed individuals the lender may request tax returns and Revenue Canada (CRA) notices of assessment for up to three years.
- Existing mortgage documentation, including a recent mortgage statement or the renewal form, along with the original registered mortgage documents.
- Copy of the fire insurance policy.
- Latest property tax bill confirming taxes have been paid and are current.
- If the property is a strata-titled condominium, the lender may request additional documentation to confirm the building is not a leaky condo or that it has been fully remediated.
- Verification of other financial obligations such as spousal support or child support.
I will be able to advise you if there are any other documentation requirements for your specific situation.
Please call me if you have any questions 250-588-2288 – Laurie Anne Faulkner