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Cosigning a mortgage: Can a cosigner help buy you a house? - YouTube
Channel: Homebuyer's School
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In this video we talk about a mortgage
cosigner — how do they work — what are
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the requirements — when you should
actually get a mortgage cosigner — and
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finally how, how do you get them off your
mortgage? That's coming right up.
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– Welcome to Homebuyer's School,
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brought to you by Brookfield Residential.
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– Hi everyone, I'm Karl and welcome to
another Homebuyer's School video, a
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channel where you get the latest
strategies tactics and tip from home
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buying experts — and remember if this is
your first time on this channel and you
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want to get the latest strategies from the
experts, hit the subscription button below,
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hit the little notification bell so you don't
miss anything. So today I'm talking with
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Mujtaba Syed, mortgage specialist with
the Bank of Montreal, and today the
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question we're going to answer is, how
does a mortgage cosigner work?
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So Mo, what is a mortgage cosigner
to begin with?
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– That's a great question. So a mortgage
cosigner, technically what they are —
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they're considered to be someone that
you can add to the mortgage application
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to help if you're missing some sort of
information. It could be there's an income
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requirement or there's a credit
requirement, there could be an asset
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requirement—depending on what the
lender is looking for. So a cosigner is
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technically there to fill the gaps of
whatever you guys are missing in the
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application.
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– So when would you actually
use a cosigner?
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– The best time to use a cosigner is when
you're not qualifying on your own.
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When you're having issues with qualifying
like I said, it could be credit related—like
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you might've had some payments in the
past or late payments in the past that's
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affecting your credit and your ability to
borrow today. A cosigner can help and
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kind of alleviate that. What it does is adds
a little level of security to the lender.
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Saying that—hey listen, we have one more
person that they can rely on just
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god forbid is something does happen. Or
same thing with the income part, if your
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income is slightly lower than what you
need it to be at, and this home is not
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meeting the stress test, the cosigner can
help alleviate that wit their income and
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their credit.
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– So how much does a cosigner actually
help with a mortgage? Is there like a
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maximum limit that they're allowed to—
percentage-wise for the mortgage?
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How does that work?
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– The way it works is—so all three
applicants would be applying for the
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mortgage, and then the debt would be
shared equally among the three. So
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there's not really a percentage amount.
They could be helping as little as 5%
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to a maximum of 100% depending on the
strength of the cosigner. The stronger the
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cosigner, the better. So when you are
looking for a cosigner, try to be like—
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immediate family, because the lender
always wants to know what's the
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relationship, what's the stake for the
cosigner to be able to take on this extra
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debt. So it could be immediate family,
father, mother, sister, etcetera. Or
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someone else who could be considered
immediate family. And someone that has
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good credit and good income. Someone
that could actually make—if whatever
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you're lacking—cover that with the bank
so they feel comfortable enough with the
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application.
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– I'm surprised with when you said 100%.
So they could actually as a cosigner you
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could take 100% on, of the mortgage?
So let's say you know, your brother has no
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income, so you could essentially take that
mortgage for him—
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– Absolutely.
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—entirely.
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– Absolutely, yeah—because the way the
cosigner works is the cosigner is—there's
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no difference between a primary
applicant and a cosigner. The banks or
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the lender will treat them exactly the
same. They're the same, whether it's
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primary—secondary cosigner, they're
considered to be owners of the home and
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liability stake within the mortgage as well.
There's a couple different scenarios, let's
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say your credit doesn't really qualify for us
to use any income—because there are
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some hard, fast rules when it comes
down to a credit that is required for a
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mortgage application. If you fall below
that threshold then the cosigner would
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have to take—would have to use 100% of
their income to cover the stress test,
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cover the debt of that mortgage. So
sometimes it could be as much as 100%
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And sometimes your income's great, your
credit's great, buy you're slightly lacking,
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and they only need to add an extra 5% of
their income to help qualify.
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Every situation is going to be different but
the good thing is you can go from 5 to
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100% depending on what your needs are.
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– And remember, if you want to know
more about how much you can get
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approved for a mortgage, watch our video
above and in the description below.
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So I think you already talked about the
requirements for a cosigner, like obviously
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it's the bank want someone that you
know. Any other specific requirements?
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Or that's pretty much—just as long as they
have good income and good credit?
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– Requirements are going to be that
they're going to be home owners with you,
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that's something that's missed, right. So
they technically are—they have a share in
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that home, right. So picking a cosigner is
very important, it's something that you
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should consider to do with a lot of
thought and consideration, because they
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will own that home just as much as you
do. They will also have a liability to pay
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back as much as you do. So technically
they're in it with you, just like as you are.
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So look at it that way and make sure that
they have good credit, good income.
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The whole idea it to make the application
as strong as possible, to fill the gaps that
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you might be lacking or missing.
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– Let's take a look at it from the
perspective of being a cosigner then—
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what is the impact on you? Like, imagine
if you're taking on a $400,000 dollar home
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—50% right, how does that impact your
ability to let's say buy a new home or
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credit—like what are the impacts?
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– Absolutely. So the way it looks like is
you're actually the home owner, right. You
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might not live there as a cosigner, you
might be helping out a family member
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but that shows up on your credit bureau
and on your assets and liability as you are
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that home owner, meaning the full
payment counts against you. They're not
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going to take one third or that payment or
half of that payment, it's 100% of that
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payment that going to apply to you. And
any future lending you may have,
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whether it be to buy a car, whether it be to
buy a home for yourself, whether it be any
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type of lending whatsoever. So once
again, a cosigner should also be very
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careful right, and know all their details
before becoming a cosigner because
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sometimes it takes some time to get off.
It could be as soon as 6 months, it could
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be a couple years depending on what
the requirements are, depending on what
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they need to do. So definitely have that
conversation with someone, it's great to
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help out family members, 100%. We
should be, if we can do it we definitely
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should try, but know what you're getting
into, have a conversation with the lender.
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Maybe if you feel uncomfortable with
your family member there, book a
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separate meeting, have a one on one
with them to find out what exactly the
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implications are to you. To see if you can
actually live up to the implications or
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live up to that responsibility of being
a cosigner.
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– Is there a difference between a
cosigner and a co-borrower?
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–Technically in the eyes of the bank, no.
so we consider the cosigner to be a
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co-applicant — which is a joint applicant
— which is part owner of the home and
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part liability owner of the mortgage as
well. So in the bank we look at it
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no different.
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– And then finally, what happens if you
have a cosigner with bad credit?
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– Then technically they wouldn't really be
a cosigner, right. Because if they're not
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really helping alleviate the application or
making the application any stronger,
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then it's probably best not to bring that
cosigner on. That's a question that your
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mortgage specialist can actually have
with you. Sometimes clients bring in a
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cosigner and actually hurting the
application more than helping it.
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They might have their own sets of debts
— they might have lower income — they
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might have bad credit. So once again,
having a cosigner—it has to kind of fit
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in your scenario with your application. So
your lender can guide you and your
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mortgage specialist can guide you on that
and if it doesn't work it's probably best to
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find a different cosigner.
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So Mo, how do you get a cosigner off your
mortgage?
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– That's a really good question, we get
that question quite a bit when clients are
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coming in. So the way I explain this to my
clients is that your cosigner is there to fill
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a gap, right. So there's obviously a gap in
your application. We need to first find out
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what that gap is. It could be credit related
if your credit score is not where it needs
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to be at. It could be income related if your
income level is not there. So taking a
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cosigner off could take as short as 6
months, it could take longer. But what
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needs to happen is that you need to fill
that missing gap the cosigner is bringing
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in. So if it's income related, you would
need to replace the income of the
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cosigner with your income. You might get
a raise, you might get a new job, you
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might pick up some part time work.
Those things can help alleviate that but
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it really just depends on what the gap was
at that time. It could be credit related
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where your credit's not where it needs to
be at, and then you need to work on your
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credit—it could 6 months, it could take a
year depending on your bureau. That
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could actually help. So first we identify
what the gap is—what the cosigner is
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filling, and then to take them off we have
to replace that gap—and then yes, it's
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something that we do at the bank once
your mortgage is setup. It's just called a
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Covenant Change. Something that your
bank or lender can discuss with you
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further.
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– So let's say if like, if you are cosigning
and then you had to take somebody off,
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you have to replace it or what if you just
want to take it on by yourself?
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Is that okay too? Or they have to do a new
check on you, a new mortgage stress test
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a new—what happens?
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–So anytime you need to make changes
to an application, anytime you make
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changes to a mortgage, it has to go
through the re-approval process because
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now you're changing the terms, you're
changing the dynamic of the application.
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So we would have to do a new application
at that time. So if you want to take the
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cosigner off, we would see if you qualify
to actually take this debt on yourself.
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Maybe a year ago you didn't, you
could today if you have higher income,
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if your credit has gotten better. We
will tell you during the application
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process if it's possible. If not then we
might come back to you and say—
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listen, we've tried—those gaps are still
there. It could be the income—yes your
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income has increased, but not to a
level where we can take this cosigner
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off—or your credit has increased but not
to a threshold that we need. So you might
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need to keep your cosigner a little longer.
But we will advise you—or the mortgage
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specialist should be advising you on what
the process is and the steps to take, and
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the timeline on that.
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– Great. Do you have anything
else to add?
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– I think the best thing to do in this
situation is have a proper conversation
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—like if your application is not getting—
usually the cosigner comes in when your
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application is not getting approved, right.
There's something missing, so have a
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conversation with your lender—with your
mortgage specialist, say—listen I can get
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a cosigner, what are the requirements,
what do I need? Do I need to have a
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certain level of income, what is my
application missing that I can fill with a
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cosigner? And that way when you're
actually looking for a cosigner a you know
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exactly what to look for—and have a
conversation with them, and explain to
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them exactly what a cosigner is—and
then what your plans are in the future.
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– Great. So the question of the day I have
for you is, have you ever been a cosigner
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and what was your experience—or have
you ever used a cosigner and what was
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your experience with that? Let us know in
the comment section below. Thank you
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very much for watching—and remember,
if you enjoyed this video and found it
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helpful, make sure to hit the like button,
leave a comment and subscribe.
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Thank you and we'll catch you next time.
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– That's another edition of
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Homebuyer's School. Tune in next time
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for more expert tips and tricks, and visit
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homebuyersschool.ca to bring you one
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step closer to finding your dream home.
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