When you’re buying a home, there are plenty of factors that can interfere with a smooth process. One of these factors is the inability to obtain a mortgage, whether because of bad credit, a lack of sufficient income, or some form of debt, which are common for many people.
So, what do you do when you can’t obtain a mortgage in the traditional way? Fortunately, most lenders will consider allowing someone to act as a guarantor for a mortgage.
What is a Guarantor?
Guarantors are similar to co-signers in that they both ‘guarantee’ the mortgage in one way or another, but there are some key differences between them. While a co-signer is registered on the title of the property, guarantors have no claim to the property. The guarantor’s main role is to guarantee that payments are always made.
When Do You Need a Guarantor?
Guarantors are usually used when an applicant meets the income requirements for a mortgage, but they have problems with credit. A guarantor then agrees to cover the loan in case the applicant defaults. This can also be useful for couples applying for a second mortgage, or when one of the buyers is an entrepreneur or self-employed.
What are the Requirements for a Guarantor?
A guarantor must be in better financial standing than their applicant to ensure that they can cover the costs of the loan if it was ever necessary. The lender will then have to confirm this qualification. The guarantor will be asked to provide disclosure of income, liabilities, and assets, as well as a credit check.
What are the Risks of Having a Guarantor?
On the side of the applicant, there aren’t many risks to having a guarantor, as they’re simply guaranteeing your mortgage. However, guarantors become responsible for the loan should the applicant default at any point; they’re expected to pick up the full amount of the loan. That’s why it’s so important for guarantors to meet the qualifications and understand their responsibilities.
Learn More About Guarantors
If you need a guarantor for your mortgage or you’re considering becoming a guarantor, you’ll likely have situation-specific questions. As a qualified mortgage broker in Edmonton, I’d be more than happy to help answer all of your questions. Contact me today to discuss your options and learn more.