Getting a co-borrower or guarantor for a mortgage

When should you consider getting a co-borrower or guarantor? 

Life’s expensive and getting a mortgage can be too. You might need a co-borrower if you: 

• Can’t qualify to buy the house you need or want because of financial constraints
• Have a poor debt-to-income ratio (how much you make versus how much debt you have on a month-to-month basis)

Things to consider before getting a co-borrower or guarantor

With most mortgage approvals, you’ll generally need a credit score above 680–but if you’re going in with a co-borrower, as the main applicant you’ll need a score of 700 with your co-borrower at a score of 640. 

And, just like with any large loan, there are always pros and cons to having more than one party involved. 

Pros of having a co-borrower or guarantor

When it comes to getting a mortgage, it’s no surprise that in some cases there is strength in numbers. By taking out a mortgage with a co-borrower or guarantor, you open yourself up to a lot of pros. 

• You can start building equity sooner than later. There’s a better chance of you getting approved with a co-borrower, which means you can start putting money into your home. 
• When you’re borrowing money with someone else, lenders may often see you as less of a risk given the mortgage responsibility is spread out across more than one person. One major pro of getting a co-borrower is you may now qualify for a conventional mortgage, given you may have a collective higher income. This will help lower costs since you won’t have to get mortgage insurance if you offer a 20% down payment. 

• Having a second person on the mortgage may also help you qualify for a larger loan. Since mortgage lenders often look at your income as one aspect to your application, having two incomes will help lower the overall debt-to-income ratio, which is one factor in identifying how much you can afford. 

Cons of having a co-borrower or guarantor

• You are potentially putting your relationship with your co-borrower or guarantor at risk. It is crucial for you to go into a co-borrower situation with someone you trust, and who you’re confident can help share the payment (if they’re a co-borrower) – or more importantly, can entrust you to pay the monthly mortgage costs so they won’t have to worry about taking on the debt (if they’re a guarantor).
• Given that co-borrowing and being a guarantor involves more than one person’s credit score, it’s important to ensure both you and who you borrow with stay on top of payments.
• If you’re in a co-borrower situation and your co-borrower experiences a loss of income for whatever reason, remember that you’ll be on the hook for payments–and vice versa.
• When it comes to co-borrowing, you’re in it for the long haul. Keep this in mind when you’re borrowing with a partner, especially if owning with a partner. Clauses may need to be put in place, if for whatever reason your relationship ends. 

What does the co-borrowing process look like?

The co-borrowing process is very similar to the mortgage process if you were to apply as an individual. As co-borrowers, your lender will still pull up your incomes, credit scores and credit histories, debt, incomes, and how much you’ll have for a down payment.

Overall, having a co-borrower or guarantor can get you into the real estate game a lot sooner than you think. But, if you’re unsure if it might be the right decision for you, connect with one of our mortgage experts today and fill out our easy-to-use application–they’ll be happy to find the best choice for you.