A guarantor or co-signer is a person who agrees to repay a loan for another person if that person goes into default. Having a guarantor loan may be the only way for someone with bad credit, low income, not enough down payment, or questionable employment history to get a loan or mortgage. If the person taking out a loan has a guarantor, the lender can be assured that he or she will be paid.
Many people think that a guarantor mortgage is the same thing as a co-signed loan, but it is not. The responsibilities the two have are different. While they are both responsible for paying the loan if the borrower defaults, the guarantor will not have his name on the title, but the co-signer will. The co-signer is also a co-owner and will have claim to the property.
Young people often need a guarantor loan. They may not have enough income to get a loan, or they may have enough income but have not yet established good credit. Couples may also opt to use guarantor loans if they own a business. This method would keep one spouse off the title and safeguard the home should anything go wrong with the business.
A guarantor mortgage will carry more risk and responsibility for the guarantor than co-signers on mortgages. The guarantor is responsible for the entire amount of loan if the borrower defaults. Because of this, guarantors must have their credit checked, and they need to disclose their income, liabilities, and assets. Because they hold so much responsibility, a guarantor should be well informed about the person he or she is signing for. Seeking legal advice before signing anything is important, and the attorney you see for advice should not be the attorney involved in the mortgage transaction. Also consider the relationship with the person you will sign for as you are taking a risk. A family member or close, long-time friend will most likely be a better bet than an acquaintance. It is very important to know and trust that person. Although not required, you might consider taking out creditor insurance to give yourself peace of mind. The cost will depend on the amount of the loan.
There are other variables to keep in mind when considering signing as a guarantor. Take the time frame into consideration. If you are a guarantor, you may not be able to qualify for a large loan or mortgage of your own. However, it is possible for a guarantor to be released from his or her obligation. Criteria for this include the borrower keeping current with his payments and creating good credit. Lenders have different rules for release. They also do not like to resort to the guarantor. They will try to work out a plan with the homeowner before taking that road. Your relationship with your bank can also influence whether or not you need guarantor loans. A long-time, trustworthy customer may not be required to have a guarantor loan as the bank will have confidence that the loan will be repaid. The quality of the home and property may also influence the bank’s decision.
Most people who take on home ownership accept the responsibility and commitment, but sometimes having guarantor loans will give them support and confidence needed. The GLM Mortgage Group can answer all your questions about a loan guarantor. Come visit us today.
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