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Using a Co-Borrower or Guarantor to Get a Mortgage


If you are looking to buy a home and your credit record is something less than the best and your job history is a bit blemished, you are going to pay more for a mortgage loan.  

Low credit ratings and job instability are the two major reasons many Australians find themselves herded into “subprime” land, where you are seen as a higher risk borrower and consequently will pay a higher interest rate.  If your financial condition is seriously insufficient, you may not qualify for a mortgage loan anywhere at any price.

To get around this some buyers opt to include others to co-sign the mortgage; which allows additional income and assets to be considered in the application process.  When granted, the obligation to repay the loan will be incumbent on both parties.

If you are the principal borrower and plan to live in the home, you must know that should you default on the loan, your co-signer will be liable and his or her credit rating will be affected as well.

Co-signer arrangements generally take two forms:

  • Co-Ownership with other parties
  • Guarantor from a family member

Some unmarried couples will pool their financial resources to be able to get a better deal on a mortgage.  While this may achieve the primary objective of home ownership, it has some serious risks that are not to be taken lightly.

They all have to do with ending the relationship.  If the couple breaks up, what happens to the ownership interest of the party leaving the home?  What happens to the financial obligation to repay the loan?

Anyone considering a co-ownership arrangement of any kind should consult a solicitor to draft and put in place a legally binding co-ownership agreement which will spell out – in advance – how the parties want the property handled in the event of a break up of any kind.

Using a family member as guarantor involves its own risk.  In some cases, the family guarantor not only includes his or her income in the loan application, but also the property he or she owns.  Think carefully about how at risk that family member will be if you default on the loan.  They will be liable for repayment, and their own credit rating and home are placed in jeopardy.
 
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