Personal Finance

Consigned mortgage questions

  • Last Updated:
  • Feb 3rd, 2015 11:28 pm
Tags:
None
[OP]
Newbie
Dec 13, 2014
65 posts
6 upvotes
Edmonton, AB

Consigned mortgage questions

Wife and I have saved up for a down payment on a house, but our credit is still crap from a disaster from about 4 years ago. Her parents have offered to cosign, but if anyone has any experience or knowledge in the subject, I'd like to pick your brain.

We have terrible credit, and they have great credit. How does this affect the rate we will be able to get? More than likely will be going variable.

Are there any other stipulations? Are consigned mortgages difficult to get? What about cosign vs subprime?

Wading into a murky mess and would like to do it with as much knowledge as possible.

Before I get ***** from everyone about wanting to buy, the rental market here is absolutely insane. I would save at least 400-600 a month by buying. This includes property taxes, insurance, everything. If I'm able to find something with a renter I would be almost mortgage free.
8 replies
Deal Expert
User avatar
Aug 18, 2005
18594 posts
3213 upvotes
GTA West
Sounds like her parents are very nice people. I very STRONGLY RECOMMEND that you avoid the co-signing situation as it can lead to a world of pain.

A huge number of scenarios could occur in which everyone in situation gets into a piece of crap. Some examples:

1. You got a much better job in another city but you can't sell because the house has gone down in value and is worth less than what you owe. Don't even think about a "strategic default" as her parents will get foreclosed on and probably get sued by the bank. Then the bank can try to put a lien in her parents' home. Gonna rent it? Try being a long distance landlord - it's a massive hassle and very difficult. Management companies take a large percentage of the rent.

2. If you ever get into a real bind and have to file bankruptcy, her parents will still be signed on the mortgage and they will have to either pay up or get sued.

3. You can't make the payments due to disability or job loss, and you get behind, this will ruin her parents' credit.

4. If something happens to your wife (i.e. accidental death) you had better have insurance, otherwise without her income, you might default on the mortgage and then the bank sues her parents.

5. If the house loses value due to mould, termites, erosion, flood, natural disaster, etc., I hope you're prepared to keep paying for it to avoid creating problems for her parents.

Every time you buy something, go on vacation, make a career move, etc., you will feel the judgement of your in-laws. Every time you go over for dinner, it will feel different.

In summary, the co-signing can create a situation where you irrevocably damage your relationship with your wife and her parents, and you will only wish you had somehow found a rental.

P.S., Do you think your marriage will survive any of these situations?
What if there were no hypothetical questions?
Moderator
May 28, 2012
10186 posts
2344 upvotes
Saskatoon
There are no subprime mortgages in Canada, none from the major financial institutions anyway...

JM had some very good points. In general, money and family should not mix. Also think about it from the parents' perspective...would they be doing this out of familial obligations? If their credit is excellent, it looks like they have made good decisions thus far. I would certainly not appreciate being put in that situation.
Deal Fanatic
User avatar
Nov 13, 2008
6122 posts
986 upvotes
Fort Saskatchewan
I agree with above, did the parents actually 'offer' or did you or your wife ask them?

Tough situation. Have you looked in the surrounding areas? I moved from Edmonton out to Fort Saskatchewan, and you get more bang for your buck out there.

Anyways, tricky situation to be in.
˙dlǝɥ ɹoɟ ǝɯ WԀ oʇ ǝɯoɔlǝʍ lǝǝℲ ˙spɹolɹǝʌO pℲɹ ʎɯ ɟo ǝɔᴉʌɹǝs uᴉ ƃuᴉʇɐɹǝpoW ʎlᴉddɐH
Deal Addict
User avatar
Nov 9, 2003
2689 posts
273 upvotes
Nice parents, I'd never do it myself; family and money shouldn't mix unless they are completely willing to bail you out if something goes wrong

Never co-sign for someone else unless you are willing to pay the loan off for them without regret.

Since you are on the benefitting side is really sit down with them and discuss the negatives to see if they still are wanting to
[OP]
Newbie
Dec 13, 2014
65 posts
6 upvotes
Edmonton, AB
Parents brought it up, but the more I think about it the less I like the idea. The only way I would even go ahead is if I had substantial savings set aside for contingencies.

And yes there are subprime mortgages in Canada. Haven't looked into it much.
Sr. Member
Jul 18, 2009
679 posts
103 upvotes
The banks generally don't allow co-signers on mortgages. Instead, they will require the parents to be co-owners of the property, which then brings up other issues like access to first time home buyer's programs and capital gains when the property is sold.
Newbie
Sep 21, 2014
17 posts
Carlyle, SK
You could try a Credit Union. I don't have the best credit either but qualified for a mortgage through them. I spent about a year trying to find a lender who would work with us and always came up empty, was told that NOONE would lend to me unless I have at least a 25-30% down payment. I went to the Credit Union and was told I just need a 605 Credit score and a 5% down payment, and of course no collections on your credit report.
Sr. Member
User avatar
Nov 7, 2004
781 posts
48 upvotes
Vancouver
Co-signors are always on title of the property and will thus always be required to be on the mortgage as well.
Guarantors on the other hand, are not on the title of the property or the mortgage.

In a situation where your income is strong enough to support the mortgage, but have subpar credit, an "A" lender would consider letting a guarantor onto the mortgage to strengthen the file on the credit side. However, if your credit is "terrible" as you have described it, then the "A" lenders will likely decline your mortgage application regardless of whether there is an individual with strong credit who is willing to go on as a guarantor OR a even a co-signor. (banks definitely like co-signors MORE than guarantors as its easier for them to chase after a co-signor than a guarantor if you were to default on your mortgage)

If your credit is terrible, you will likely have to go with a "B" lender where rates are higher, and where there are typically fees charged.

Your best bet is to find a mortgage broker in your area and have this discussion with him/her. They will be able to provide you with some different options available to you. Without having a deeper look into your personal situation, the input we give you on here may or may not be accurate.

Top