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Co-signing a mortgage

Co-signing a mortgage: Tips and guidelines

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Author: Justin da Rosa

By Justin da Rosa

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Updated: March 28, 2024

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When buying a home, you’ll need a mortgage – unless you’re independently wealthy and can slap down hundreds of thousands of dollars in cash. If that’s the case, congrats. I’m jealous. For the rest of us, though, a mortgage is a necessity. 

And lenders don’t hand mortgages out to just anyone. It would help if you qualified by proving you can afford the mortgage and that you’re a borrower with solid credit. Unfortunately, that isn’t the case for everyone. Maybe you’ve got bruised credit or lack a lengthy history. If that sounds like you, a lender might hesitate to mortgage you. 

The good news is that you can use a mortgage co-signer. 

A mortgage co-signer is a person who agrees to share the responsibility of a loan with the primary borrower (you, in this case). They assure the lender that the loan will be repaid, which lowers the risk of the loan in the lender’s eyes. Co-signers are typically used when the primary borrower lacks credit history or income to qualify for a mortgage themselves. 

It’s important to note that the co-signer shares the responsibility for the loan—that means the loan can affect their credit, as well as yours. Let’s get a little more familiar with co-signing a mortgage.

Pros and cons of co-signing a mortgage

Here’s a simple cheat sheet on the advantages and disadvantages of having a co-signer on your mortgage. 

Pros

Pros

  • Increases your chances of loan approval

  • Gives you access to better interest rates

  • Offers the opportunity to help a loved one achieve homeownership

Cons

Cons

  • There are financial risks and responsibilities for the co-signer

  • There’s potential for strain on relationships if the primary borrower has issues paying back the loan

  • It can have an impact on the co-signer’s credit

Understanding the co-signer's role and responsibilities

As we’ve already mentioned, a co-signer is like a guarantor for a loan. They agree to be accountable, along with the primary borrower, for loan repayment. That means they assume financial responsibility for a mortgage just as much as the primary borrower. 

They’re also required to make payments if the primary borrower defaults. Before the loan is signed, they may need to provide financial documentation and meet specific credit criteria, such as proving their income and creditworthiness, to qualify as co-signers.

If you’re considering becoming a co-signer or including one on your mortgage, it’s essential to understand the responsibility of a co-signer. Make sure to have in-depth conversations about the mortgage to understand the role you’ll both play and how it might affect your relationship. 

Financial considerations

There are some financial things to consider before becoming a co-signer or having someone co-sign a mortgage for you. The first has to do with credit score. Co-signing for a mortgage will add a trade account to the co-signer’s credit report, which can have a similar impact on their score as having their loan. 

And while a co-signer is financially responsible for mortgage payments if the primary borrower defaults, they don’t enjoy the benefits of owning the home since they have no financial claim. Because of this, co-signers are most often close family members. 

Co-signing a loan also increases your debt-to-income ratio, a measure of monthly debt payments relative to gross income. Lenders look at this ratio for assessing creditworthiness. Elevated debt, compounded by a co-signed loan, could hinder your eligibility for further credit.

Legal aspects and protection

Before entering into a co-signer agreement, it's essential to consult a lawyer. Ask about the deal's legal implications and how it may impact your credit and future financial opportunities. 

Develop a plan with the primary borrower to ensure they can handle the loan payments. It's not unrealistic to ask them to share their financial details with you; after all, you're signing a legal agreement to make loan payments if they cannot.

Research ways to financially protect yourself as well. Credit life insurance is a type of life insurance designed to pay off outstanding debts in case of death. This type of insurance protects the co-signer from having to pay back the mortgage if the primary borrower dies. 

Co-signing and real estate

It's important to note that co-signing a mortgage does not entitle you to any of the home's value. You aren't an owner of the property; it's just a safeguard to guarantee the loan is paid back. In that sense, there's only risk for the co-signer, no reward. 

That means that, as the home appreciates, only the primary borrower is entitled to the capital gains. 

Another thing to consider is the potential impact being a co-signer may have on your plans to purchase real estate. If the primary borrower defaults on the mortgage, you'd be on the hook to repay the loan. If you're unable to do so, your credit score will likely suffer, affecting your ability to purchase real estate in the future. 

Steps to co-signing a mortgage

Before signing a mortgage contract to become a co-signer, you’ll need to go through a few steps. 

  • Discuss your responsibilities: Understand obligations and risks associated with co-signing. 
  • Get your documents in order: Prepare proof of income, assets and credit history, similar to if you were getting your own mortgage.
  • Choose a lender: While this likely falls on the primary borrower, they’ll need to find a lender willing to accept co-signers.
  • Submit the application: Complete paperwork and undergo credit checks. Both you and the primary borrower will have to go through this step.
  • Sign the mortgage documents: Along with the primary borrower, agree to terms and conditions.
  • Stay in contact with the primary borrower: Stay informed about payments and loan status. Ask questions and regularly check in to ensure they’re handling and paying the loan as agreed upon.
  • Make a contingency plan: Be prepared to step in if the primary borrower defaults. This plan may include building an emergency fund or getting credit life insurance. 

Communication and decision-making

As a co-signer, it’s essential to be involved in the decision-making. Communicate with the lender, ask questions about your role and responsibilities and take the time to understand the mortgage contract before signing on the dotted line.

If you’ve agreed to be a co-signer but haven’t signed anything, it’s okay to back out of the agreement if you decide it’s too risky. It’s a big decision that shouldn’t be taken lightly. That’s why it’s important to have several lengthy conversations with the primary borrower before agreeing to co-sign. You’ll want to consider every possibility before agreeing to be responsible for their mortgage. 

You’re also entitled to ask the lender any questions you might have. They’ll walk you through your responsibility as if you were buying the home. Ensure you have all the information you need before becoming a co-signer. 

Conclusion

Becoming a co-signer on a mortgage is a huge decision. It can negatively impact your finances and strain your relationship with the person buying the home. 

Know your responsibilities as a co-signer, understand the potential impact it can have on you and don’t be afraid to ask questions. Make a contingency plan if you co-sign and encourage open communication with the primary borrower. 

Despite the risks, co-signing can be a great way to help a loved one – who may not otherwise be able – to purchase a home. 

FAQs

  • What is the downside to cosigning a mortgage?

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    The downsides of co-signing a mortgage include being responsible for repayment in case of primary borrower default and the potential impact on your credit score and debt-to-income ratios.

  • How soon can a cosigner be removed from a mortgage?

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    Typically, co-signers stay on the mortgage for at least a year. However, they’re often not removed until a few years have passed. Speak with the lender to understand when and how you can be removed from the mortgage as a co-signer.

  • Is it safe to cosign a mortgage?

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    It depends. By co-signing a mortgage you're taking on the risk and responsibility of the primary borrower's mortgage payments should they default. Speak with a lawyer to understand the roles, responsibilities and potential pitfalls of co-signing a mortgage.

  • How long does a cosigner stay on a mortgage?

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    A co-signer stays on a mortgage for at least a year, in most cases, but often several years, until the primary borrower can qualify independently. This will depend on the primary borrower’s qualification. A lender will determine when the co-signer is ready to become the sole person responsible for the mortgage. Only then can the co-signer be removed.

About our author

Justin da Rosa
Justin da Rosa, Freelance Writer
More from this author

Justin is a writer and editor who has been covering personal finance for over 10 years. He's written for companies such as KOHO, Ratehub, BMO, Zoocasa, and Questrade, among others. Justin also created a course in Content Creation, which he taught at York University for four years. When not writing, Justin can be found at a live concert, on the golf course, riding a motorcycle, or sailing.

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