When a borrower is not approved for a mortgage by a lender on the borrower’s own financial standing, there are other options the borrower can pursue. Most commonly, the borrower can find a co-signer for the loan. A co-signer literally signs off on the borrower and tells the lender through their signature that they are willing to legitimize the borrower’s loan application.
If the co-signer cannot be found, and the lender is willing, the borrower can approach someone to guarantee the mortgage. A mortgage guarantor promises to cover the mortgage payments for the rest of the loan contract’s duration should the borrower default. There is an important difference between a mortgage guarantor and a co-signer. The co-signer adds their name to the title of the contract, which means that they have a legal right to the property if the borrower defaults.
The guarantor has no such right because there name is not on the title. The guarantor does have the responsibility of making sure that the payments are made, regardless of the compensation or lack thereof. In other words, the guarantor assumes the borrower’s obligation but none of the borrower’s privileges.
This is very helpful to the borrower because it relieves them of being pursued by the creditor if they default. It also provides some measure of relief to the lender since they have a secondary source of payment to turn to if the borrower defaults. The guarantor is under a very serious obligation, however, since they are prohibited from applying for any loan whatsoever while they are responsible for guaranteeing the borrower’s mortgage.
Guarantor mortgages are not to be taken lightly. The lender will pursue all other means of working with the borrower before notifying the guarantor to fulfill their obligation. That being said, the guarantor is a huge help the borrower, especially if the borrower is in such bad shape that they need to file for bankruptcy.
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