Co-Signers & Joint Purchases

Buying with someone else — a parent co-signing, a sibling going in half, two friends pooling deposits — solves the qualifying problem and creates a different one. The mortgage part is straightforward. The part worth slowing down for is what happens when one of you wants out.

The thing most co-signers are not told

A co-signer is liable for the whole mortgage, not half of it. If the payments stop, the lender does not pursue a share — it pursues whoever can pay. That is the entire reason a lender accepts a co-signer, and it is frequently glossed over when a parent is asked to help.

Three further consequences follow, and they matter more than the signature itself:

• The mortgage appears on the co-signer's credit report. It counts against their own borrowing capacity — their next refinance, their own purchase, a line of credit they were expecting to get.
• Late payments damage the co-signer's credit too, and they may not find out until they apply for something themselves.
• Getting off is harder than getting on. Removing a co-signer later means a new mortgage, with the remaining borrower qualifying alone. If they could do that, the co-signer would not have been needed.

None of this is a reason not to do it. It is a reason to do it with the conversation had out loud, in advance, rather than discovered in year three.

Co-signer or guarantor

They are not the same, and lenders differ on which they will accept.

• A co-signer goes on the mortgage and on title. They are a legal owner of the property.
• A guarantor goes on the mortgage but not on title. They carry the liability without the ownership — which is worse for them, and is one reason fewer lenders offer it.

Where a parent is helping a child buy, being on title has its own consequences: the property may not be the parent's principal residence, which can matter on a future sale. That is a question for an accountant before closing, not after.

Buying together, as equals

Two friends, two siblings, or a couple who are not married — the lender's view is simple: everybody's income counts, and everybody's debts count. The complications are legal rather than financial, and they are the ones to get right.

How you hold title

• Joint tenants. Equal shares, and on a death the survivor takes the whole property automatically. Normal for couples.
• Tenants in common. Shares can be unequal — 70/30 if the deposits were — and on a death a share passes under the will, not to the co-owner. Normal for friends, siblings, and anyone with children from a previous relationship.

Choosing the wrong one is quiet for years and then very loud.

The co-ownership agreement

If you are buying with anyone you are not married to, have a lawyer draw one up. It should answer, in writing, before you own anything:

• Who paid what, and what each person's share actually is
• Who pays the mortgage, the taxes, the insurance and the repairs, and in what proportion
• What happens when one of you wants out — can the other buy them out, at what valuation, on what notice?
• What happens if one of you cannot pay
• What happens on a death, a separation, or a job in another city
• How a sale is decided if you disagree

It costs a few hundred dollars and it is the difference between a disagreement and a lawsuit.

Common questions

Does a co-signer need to live in the property?

Usually not. Most lenders accept a non-occupying co-signer, though a few prefer them to be an immediate family member.

Can we remove the co-signer once my income improves?

Yes — by refinancing into a mortgage in your name alone, which means qualifying for the full balance on your own. Plan for it at a renewal date, when there is usually no penalty to break.

Will co-signing stop my parents buying a condo later?

It can. The full mortgage payment counts against their ratios. If they have plans of their own, that belongs in the conversation before anyone signs, not after.

Four of us want to buy together. Is that possible?

Lenders will generally go to four borrowers on a residential mortgage. Beyond the financing, the co-ownership agreement matters more with every person added.

We are not married. Does that change the mortgage?

Not the mortgage. It changes what happens if you separate, because the protections that apply to a matrimonial home do not apply to you — which is exactly what the agreement is for. See also separation and divorce.

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This page is general information, not legal, tax or financial advice. How you hold title and what a co-ownership agreement should say are legal questions — obtain independent legal advice, and speak to an accountant about the tax consequences of being on title. Pegasus Mortgage Lending Center Inc., Brokerage, FSRA Licence #11479.