Featuring real estate articles and information to help real estate buyers and sellers. The Nest features writings from Georges Benoliel and other real estate professionals. Georges is the Co-Founder of NestApple and has been working as an active real estate investor for over a decade.
Many people dream of buying a co-op or condo in New York City. However, it’s a pipe dream because they know they can’t qualify for a mortgage. They may have a low income, bad credit, or no savings, to name a few. But did you know that a person who faces financial difficulties can qualify for a mortgage? They can reach out to a Co-Signer or Guarantor in New York.
A Co-Signer or Guarantor in New York can help you secure a mortgage. Then your dream of owning a condo or a co-op may just come true. If you have no credit history in favorable terms or no credit profile, seeking out financial help will boost your chances of acquiring a loan. That’s the main reason why people combine forces with a Co-Signer or a Guarantor in New York. So what is a Co-Signer or Guarantor in New York? And can they help you get a mortgage in New York? We’ve got you covered. If you want to buy a condo or co-op, read on to learn everything about borrowing a loan together with someone else.
A co-signer is someone who can help you qualify for a home mortgage. This is when you have a low or bad credit score, have limited finances, or have a high debt-to-income ratio. A co-signer is also known as a “co-borrower” or “co-applicant.” The co-signer will take out a mortgage with the borrower and get listed on the mortgage as an additional borrower. The co-signer’s income, assets, and credit history enter into play to secure the loan. The co-signer needs to have a great credit score, a high income, and few or no financial blemishes throughout the years. In short, the co-signer lends his or her good name and credit history to help the buyer secure a loan.
Both the borrower and the co-signer will end up owning the co-op or condo jointly. They will both appear on the property’s title. The borrower is responsible for paying the mortgage. However, the co-signer is equally liable to make the loan’s monthly payments since their name is on the title.
The mortgage lender typically receives payments from the borrower. The co-signer only comes in when the borrower fails to make a payment. This distinction is essential because the co-signer is directly responsible and obligated to make the payment if the borrower somehow defaults. A co-signer, then, is a back-up for the lender as well as a security measure. It allows the lender peace of mind that the loan gets paid without resorting to extraordinary measures.
For example, suppose the borrower has stopped making payments for any reason. In that case, the co-signer may have to cover the missed payments and any penalties such as late fees, additional interest, and more. As a result, becoming a co-signer is always a risk.
The co-signer is sometimes a family member or relative or even a friend unrelated to the borrower. But most times, the co-signer is the spouse or is romantically involved with the primary borrower. The lender refers to the co-signer who is not married to the borrower as the “co-applicant.” The lender issues individual loan applications for the same mortgage. The lender thinks of both the borrower and the co-signer as independent entities with separate finances. But if the co-signer is the borrower’s spouse, the two will only fill out one mortgage application form together.
The co-signer does not have to live together with the borrower in the apartment that they jointly own. Even if their name is on the mortgage or deed, co-signers can live elsewhere. Also, co-signers don’t need to be on the deed. But both names remain permanently on the borrower’s mortgage.
Co-signers are not needed to qualify for mortgages if borrowers have enough funds to take them on by themselves. But the co-signer and borrower can still work together to afford a larger mortgage with lower interest rates.
A guarantor is similar to a co-signer as they help out the borrower. In a nutshell, a guarantor is used to guarantee mortgage payments to facilitate mortgage approval. Unlike borrowers who need co-signers’ assistance, they may have the finances to carry a mortgage on their own but have difficulties securing a loan. Maybe they have a low credit score or have significant credit issues.
There’s a difference between a Co-Signer or Guarantor in New York. Guarantors don’t have the same property rights as co-signers since their name is only on the mortgage and not on the property title. The guarantor helps get mortgage approval and guarantee mortgage payments.
But there is an important distinction to make.
The guarantor is only there to lend their good name to help the borrower close on the mortgage. But like the co-signer, the guarantor must also have good credit. In essence, the guarantor takes less risk when helping out a borrower. The guarantor is only responsible when the borrower defaults.
In contrast, the co-signer takes more risk because he or she takes on more financial responsibility. And they are also in a better situation because they don’t own any part of the home. They are helping the borrower out of compassion. As an example, this would be a parent helping out an adult child.
And suppose guarantors want to lessen their fiscal responsibility or reduce it significantly to the point of not getting involved at all after securing the loan with the borrower. They can get the mortgage lender on board to open an interest-bearing savings account and putting a one-time lump sum into it.
If the mortgage value decreases—usually to around 80%–the lender will release the guarantor from the agreement and refund the money.
The co-signer has to show the lender their credit history, credit score, income, debts, employment, and other financial information to be a part of the application for the borrower’s loan. The borrowers can’t secure a loan on their own because lenders rely on the co-signers to increase the borrowers’ chance of qualifying for the loan. For this purpose, lenders pull hard inquiries on the co-signers’ credit as part of the loan application.
That said, the co-signer will have to proceed with caution as their credit score will get affected. So being a co-signer for the borrower can hurt the co-signer’s credit. The mortgage will show on the co-signer’s credit report and, as discussed, will be legally responsible for making payments on the loan if the borrower defaults.
Sometimes, the co-signer has plans to apply for a home mortgage or a loan to purchase a vehicle or something else that bears a high cost. He or she may have a hard time securing such loans because the borrower’s loan shows on the co-signer’s credit report. Inversely, if borrowers consistently make payments on the loan on time, being co-signers can help improve their credit score.
Yes, and it’s informally called a co-signer release. If the borrower fails to make payments on the loan or falls behind, the co-signer can request the co-signer release. It can only occur if two things happen:
Besides the financial risk, there is the relationship risk. The guarantor works with the borrower because he or she wants to help the borrower out. The guarantor may care about the borrower. For example, parents may wish to assist their adult child, and the ultimate gift they can give is money. The risk here is that this gift or loan can ruin the relationship between the parent and the child. The parent may have second thoughts about being a guarantor. This can happen if the adult child is not grateful. Another example is if the parent sees that the child is wasting money on stupid things.
The guarantor can lessen this problem by scrutinizing the borrower’s finances before assisting the borrower. The guarantor should act as a loan officer to determine if the borrower is sincere and has the ability and willingness to pay the mortgage loan each month on his or her own.
Like what may happen to a co-signer, the guarantor is also at risk because his credit score will go down if the borrower defaults. As a result, it may be difficult for the guarantor to secure a loan in the future. The guarantor usually assumes that the lender will go after the borrower if that borrower fails to make payments and only after exhausting all options to reach out to the borrower. But lenders have the legal right to go after the guarantor before reaching out to the borrower if the lenders feel that chasing the borrower is futile.
It will then become the guarantor’s sole responsibility to pay for any missed payments or even the remaining loan amount. If the guarantor fails to pay, he or she is in default. But if the borrower turns out to be trustworthy and keeps making payments on the loan on time and in full, then the guarantor will not be affected in any way. Then, the guarantor’s credit rating won’t take a hit. The guarantor should still be ready if the borrower defaults by having sufficient funds to cover the loan.
There may be reasons why a guarantor would want to relinquish his or her role. One reason may be that the guarantor intends to take out a loan to buy a new home.
Suppose the borrower can find another guarantor or develop additional finances (such as getting a new job that pays higher than a previous position). In that case, the lender will allow the guarantor to withdraw from the transaction. But even if there’s a new guarantor in place, it’s essential to know that the lender can disallow the switch at the lender’s discretion. The original guarantor gets stuck in the relationship with the borrower.
The guarantor can also put a safety net in place for the guarantor if the borrower defaults. The guarantor can set up with a lender an interest-bearing savings account and put a one-time lump sum into it. As soon as the mortgage’s loan value decreases (usually to around 80%), the lender will release the loan agreement’s guarantor and refund the money.
A Co-Signer or Guarantor in New York can help you qualify for a loan if you have insufficient funds or other risky financial obligations. Or they can help you secure a larger loan amount or a lower interest rate. A co-signer is similar to a guarantor in that they agree to repay the loan if you can’t. And both give a lender peace of mind about extending a mortgage to you.
But if you can’t secure a mortgage on your own because of your weak finances, you should wait until you clean up your debt. You can avoid seeking help by improving your credit, paying more than the minimum payments on your credit cards, reducing your debt, or even looking into finding a job that pays more than the one you have. It should be a last result to seek help. Many risks besot the person who helps you. Why put someone in financial danger when you can wait?