I recently had the opportunity to work with a client who really wanted to take the step to buy her own condo instead of paying off her landlord’s mortgage. She had completed the application process, then after checking her credit rating I found out she had previously declared bankruptcy.
That prior bankruptcy adversely affects her ability to get a mortgage on her own today. She has a good explanation for the bankruptcy. She suffered a life threatening illness and did not have a job where she was paid disability benefits. While she recovered from the illness, she did not have an income and could not pay her debts. At the time she was younger and did not understand the ongoing impact declaring bankruptcy would have on her ability to obtain mortgage financing. Today, she is healthy and has an established good paying career/job and pays her credit card off each month and on time.
Because of her prior bankruptcy the mortgage lender requested a guarantor. Luckily her parents were more than happy to help out and they were great candidates to be guarantors.
I thought a quick blog on the role of guarantor would be helpful.
A guarantor is a person who promises the lender they will repay a debt if the principal borrower should default on the mortgage repayment commitment (fails to pay). A guarantor will be requested by the lender, if the principal mortgage applicant is unable to qualify for financing on their own. Examples of when this could happen are insufficient employment history or a history of poor debt repayment.
The guarantor does become part of the mortgage application and approval process. They will have to disclose their assets, liabilities, income and a credit check is done. Then the lender looks as the complete picture of the applicant and their guarantor.
Once the application is approved, the guarantor will have to sign the mortgage documents including the mortgage commitment, confirming their obligation to the lender that they will be responsible to pay this mortgage, should their daughter fail to do so.
The guarantor should obtain “independent legal advice” from a lawyer who is not part of the real estate transaction so they know what their responsibilities are should the primary debtor default on the mortgage repayment. The lender (creditor) has no rights against the guarantor until the primary debtor defaults on the mortgage payments. Should the primary applicant miss one payment, the lender could enforce the guarantee and take action to have them pay the mortgage payments.
My client has sufficient income to support the mortgage on her own. Once she demonstrates at least 12 months of paying the mortgage payments on time and keeps her credit history in excellent condition, the lender will review the file and consider removing the guarantor.
I am happy to be the one to help you through the home buying and mortgage planning process. When you or someone you care about, is buying a home, call me 604-726-9550! I want to help and make this a positive experience for all my clients.
If you have any mortgage related questions, please call me or email me at Karen@mortgagecentrebc.com
Karen Boies Mortgage Planner