A guarantor is someone who pledges to ensure that the mortgage debt of a third party is repaid in a timely fashion. A guarantor may be requested by a mortgage lender if a borrower's credit or employment history is spotty, or if the borrower's income is lower than the loan might warrant. The most common situation is a parent standing guarantor for a child's mortgage.
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Think carefully about your relationship with the person whose mortgage you are guaranteeing. Determine how confident you feel that the person is unlikely to default on payments. Ask the borrower for details of his financial situation, and how he plans to finance repayments. It is crucial that you think through the step you are about to take, as you are effectively assuming a huge financial liability.
Discuss the situation with the mortgage broker, so that the broker is fully aware of what you are planning. The broker may have to shop around to different lenders, as not all are willing to accept a guarantor situation.
Find out details of the loan itself, and ask for a copy of the proposed loan contract. Read it through closely, and ensure you are comfortable with all of the provisions. It's a good idea to engage your own attorney, who is not involved in the real estate transaction to scrutinise the situation for you.
Ask whether the lender might be willing to set a time limit on your obligation as guarantor. For instance if the borrower pays the mortgage without a problem for a certain amount of time, or if the borrower's income increases with a new job. Be aware that there may be a fee to remove you from your role as guarantor.
Be prepared for a credit check and a full investigation of your financial circumstances. The bank will need details of your income and probably the equity available in your own property. Be aware that standing guarantor to someone else's mortgage will be recorded on your credit history and might limit your own ability to borrow in the future.
Be available to sign paperwork at the closing. You will not be named on the deeds, as you have no ownership rights to the property, but there will be a separate document that you will have to sign that outlines your obligations and responsibilities as guarantor.
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