Having a co-applicant can make an application more attractive since it involves additional sources of income, credit, or assets. A co-applicant has more rights and responsibilities than a co-signer or guarantor.
Depending on the terms of the tenancy agreement and guarantee provisions, the guarantor could also be responsible for paying for any damage caused to the property and other costs that the tenancy agreement may make the tenant liable for, such as the landlord's legal fees to recover possession of the property.
Applying with a co-applicant who has a higher credit score than you can help you get approved for a lower interest rate and other more favorable loan terms. And because the incomes of two applicants are being taken under consideration, this could help you get approved for a larger loan.
The act of becoming a guarantor doesn't, by itself, normally appear on your credit report. But there are ways being a guarantor could affect your report: If the borrower can't make their repayments, the responsibility for paying them will fall on you – and this will form part of your credit record.
You may have to pay back the entire debt
If the borrower can't make the loan repayments, you will have to pay back the entire loan amount plus interest. If you can't make the repayments, the lender could repossess your home or car if it was used as security for the loan.
For example, if the rent is $1,500 a month, the guarantor might need to earn at least $120,000 a year. Credit Score: As we mentioned above, a good credit history is crucial for guarantors. Landlords often look for a credit score of 700 or higher.
Key Disadvantages of Having a Co-Applicant
2. Dispute may arise in case of a fight between co-applicants. 3. In case of default, the co-applicant has to repay the remaining dues.
However, it's also an opportunity to have a positive impact for a borrower in a tight financial spot. For example, co-signing a personal loan allows you to help a young friend or family member build a credit history, thus preparing them to qualify for even more new credit later.
The primary difference between a co-signer and a guarantor is how soon each individual becomes responsible for the borrower's debt. A co-signer is responsible for every payment that a borrower misses. However, a guarantor only assumes responsibility if the borrower falls into total default.
You should only be a guarantor for someone you trust and are willing and able to cover the repayments for. Often, guarantors are parents, grandparents, uncles, aunts, and close friends. Both parties should consider not just the financial burden of non-payment of the loan, but the emotional impact.
Yes. A credit check is done on you if you agree to be a guarantor. This is added to your credit file. Any defaults on the account or agreement are also added.
However, as a guarantor, your financial liability is identical to that of the borrower or tenant. If they fail to meet their obligations, creditors can pursue you directly for the debt. This can lead to lawsuits, credit damage, and financial loss, all because you agreed to help someone out.
A co-applicant can increase your chances of getting approved for a loan, but it can also hurt your chances depending on the person you choose. Since both applicants' credit scores and income are evaluated when you apply, you need to be extremely careful with who you choose as a co-borrower.
Guarantors can be people like your relatives or close friends, but they do not have to be. Landlords and agents often check your guarantor's credit history, income and money. They might also ask for references. They might say your guarantor must be a homeowner.
The big plus for home buyers is the extra security a guarantor provides. It means you may be able to secure a home loan with just a small deposit – or even no deposit at all. It could also mean avoiding Lenders Mortgage Insurance – a saving that can run into thousands of dollars.
Co-signing a credit card for a friend or family member is a big leap to take and one that could hurt your credit score if the person you sign with doesn't pay the card payments on time.
Assess your unique circumstances before you decide
On one hand, including the partner with bad credit could disqualify you for a loan. Even if you do qualify for a mortgage when one partner has bad credit, you might not qualify for a good interest rate.
You can still be denied, but only in rare circumstances, most of which will likely not apply to a first-time borrower. A borrower with a poor credit history or negative financial situations, such as bankruptcies or repossessions, will have a harder time getting approved for a loan—even with a good co-signer.
In some cases, multiple applicants could be structured hierarchically so that the main borrower is primary, and the co-applicant is secondary. A co-signer, on the other hand, is not an equal participant in the loan application, but rather a guarantor.
How to remove co-applicant from Home Loan? You can request the novation from your lender. In novation, you can request to replace the co-applicant with another person or only with the primary applicant. However, you need to check whether your loan agreement allows for the same.
Yes, in most cases, co-applicants have equal rights to occupy the rental property or ownership in the case of a loan. If they are renting, both are listed on the lease, and if they are purchasing, both will typically have ownership rights, depending on the loan and title arrangements.
Being a guarantor shouldn't affect your ability to get a mortgage, unless you're then called upon to make repayments. Since you would be inheriting the debt, this will put you at risk of not being able to repay and this can ultimately decrease your credit score if you don't keep up with repayments yourself.
Increasing your borrowing power with a guarantor
All banks and lenders have different lending criteria when it comes to guarantor home loans, but most banks will lend up to 105% of the purchase price when you have guarantor support. Some might even lend up to 110% depending on the circumstances.
Although requirements can vary by lender, a cosigner typically needs to have good to excellent credit (670 and up) to cosign a loan or credit line. Lenders look at a cosigner's credit score and report as well as their income and assets to determine whether they qualify for a loan.