Mortgage guarantors versus cosigners, joint loans, coborrowers and cobuyers: What’s the difference?
As a borrower, you can apply for a mortgage on your own or with someone else. If you’re currently in the market for a new home, you may consider asking your friends or family to help improve your chances of being approved for a mortgage.
If so, the first question to ask yourself is whether adding someone else as a mortgage guarantor, cosigner, coborrower or cobuyer will strengthen your application. While these terms are often used interchangeably, they have distinct differences regarding rights and responsibilities.
Types of mortgage agreements
If you have less-than-perfect credit and think you can benefit from someone else’s good financial history, a mortgage guarantor or a cosigner can boost your chances of being approved for a home loan. However, if you need help making monthly mortgage payments, buying a home with a coborrower may be a better option.
Mortgage guarantor versus cosigner
The primary roles of mortgage guarantors and cosigners are to help borrowers get approved for loans, which can be helpful for first-time homebuyers with low credit scores or no credit history. While they both help assume financial responsibility for a primary borrower’s home loan, there is a distinct difference between a mortgage guarantor versus a cosigner.
A guarantor is a person who agrees to be liable for home loan payments if the borrower defaults but isn’t put on the title or deed for the property. Guarantors are only notified to cover mortgage payments when all other means of collection from the primary borrower have been exhausted.
On the other hand, cosigners are under a legal obligation to make any missed payments immediately if the borrower is unable to for any reason. A cosigner isn’t just providing a credit reference or vouching that the borrower will make their monthly mortgage payments on time. They accept responsibility for repaying the debt on time and in full. A typical scenario is cosigning a mortgage with parents or other family members, including spouses and partners.
While not all loan programs are eligible, having a cosigner may improve your ability to get prea-pproved because both incomes determine how much home you can afford.
Joint loan versus cosigner
A joint loan isn’t a particular kind of loan. Instead, it’s the process of coborrowing. Coborrowers or joint borrowers share ownership of the loan. In contrast, a cosigner backs your loan and agrees to take responsibility if you fail to make payments.
Cobuying benefits
Cobuying is when two or more people purchase a property and share ownership. Cobuying can make owning a home easier to afford because you can split the down payment, mortgage payments and household expenses. If you choose this option, you’ll want to decide which ownership option is best for you and your partner:
- Tenants in common or cotenancy is when each coowner is on the title and owns a specific percentage of the home. The percentage doesn’t have to be an equal share. Tenants in common can be related or unrelated.
- In a joint tenancy arrangement, each person has an equal share of the home. Spouses often use this option because it involves a right of survivorship.
The pros and cons of having a coborrower
Combining debt and income by cobuying with another person can be beneficial, especially if your coborrower has a higher salary, less debt or an excellent credit history. However, a coborrower isn’t just providing a credit reference.
By signing a loan document, you’re both expected to make monthly mortgage payments in full and on time. This arrangement is usually preferred when both borrowers benefit from the loan, but there are also risks.
| Pros | Cons |
|---|---|
| Combining income and assets may help you qualify for a larger loan limit if you can afford higher monthly mortgage payments together. | A coborrower may have to pay late fees or collection costs and face legal action if the loan is unpaid. |
| Paying your loan on time builds your credit history, which can improve your credit score. The next time you apply for a loan, it may be easier to do so without a coborrower. | Both borrowers’ credit scores may be damaged if loan payments are missed. |
Applying for a home loan with a guarantor, cosigner or coborrower can be helpful in the mortgage approval process. But adding someone else to your mortgage is also a significant commitment. Whatever you decide, we’re here to help. Connect with a loan officer at your local branch to learn more about the pros and cons of a joint loan for your financial situation.
The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.