Using a Co-Signer to Buy Your Next Home

Whether you're buying your first home or upgrading into that dream property, using a cosigner can be an excellent strategy to help you get your foot in the door, especially when interest rates are still higher and it can be difficult to qualify for that mortgage on your own.

Whether you're using a cosigner or you yourself are considering co-signing for someone else, there's some important details that you'll need to know before going forward.

There's also some important mortgage features that you're going to want to ensure you include in your mortgage to help protect you and provide you that flexibility you need down the road.

Let's dive in.

First thing you need to know if you're thinking about cosigning for a family member is that you're going to be 100% liable for that mortgage loan just like they are.

So if they mess up on a mortgage payment, it's going to directly affect your credit.

To address this, I suggest having an open conversation with your family about the affordability of the mortgage that they're getting themselves into.
To help facilitate this conversation, I suggest bringing in the expertise of a mortgage broker as this is a conversation we often have so that you're not the only one trying to address it.

Second thing you need to know if you're considering co-signing is that you will be required to be on the title of the property, which means that you will have a percentage of ownership in that home, which means that later on when you do remove yourself, there could be tax implications.

So before going ahead with cosigning, make sure you have an important conversation with your accountant to ensure that you're protected from any capital gains or any other tax implications.

Third thing you need to know if you're thinking about cosigning is that this will directly affect your own personal applications going forward.
So if you are thinking about applying for your own mortgage or you have an upcoming mortgage renewal, it's important to know that any mortgages that you've co-signed for do need to be disclosed on your application and this can directly affect your ability to borrow going forward for yourself personally, even if you're not the one making the payment on that mortgage.

So I suggest addressing this with your mortgage broker before you decide to go ahead with co-signing.

To prevent co-signing from affecting your own personal situation, this is where having a proper assumability clause built into your mortgage contract can be super helpful down the line.

An assumability clause in your mortgage allows for the family members that you're co-signing for to remove and assume your remaining ownership of the title and the mortgage upon them qualifying to do so.

So once they're ready to take over the property entirely, the assumability clause will allow them to do that in the middle of their mortgage term without incurring a penalty to do so. So this is an important feature that you'll want to build into your planning if you are considering co-signing for your family.

If you're thinking about co-signing or bringing in a co-signer for your own situation, feel free to send me an email or schedule a call with us to see how we can help.

Article written by:

Cody Rowe
Senior Mortgage Consultant
Dominion Lending Centres
Modern Mortgage Group
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