If one partner can qualify for the mortgage that the couple needs based on his/her income and credit history alone, is there value in co-signing the mortgage apart from the 'in it together' mentality? Does the signing partner take on additional risk by not co-signing with the other partner? Answers listing pros and cons of both situation would be preferred. Thanks.
I have been through some of this recently. These are the Ontario rules as I know them, and since my searches led to some other provinces' rules, it seems likely they are the same in the rest of Canada with the possible exception of Quebec.
First, if one of the people buying the house actively can't qualify for the mortgage due to bad credit, their name can't be on the deed. If someone else needs to cosign with you to improve the amount you can borrow or the rate you'll be charged, their name needs to be on the deed. These things are not negotiable - the lender doesn't want to lend you $200,000 to only buy half of a $250,000 house. (Your cosigner doesn't need to own an equal share, but they need to be on the deed.)
Second, if you are legally married, and you will live in the house together, it doesn't matter whose name is on the deed, you both own all of the house. Many couples who aren't married may also choose to take on this arrangement. This is the "as joint tenants and not as tenants in common" wording you may see on documents. You don't each own half the house the way a brother and sister might, you each own all of it. Neither can sell it without the other's permission, or rent it out, or change the locks. There is simply no impact on any future divorce proceeding of whose name you put on the deed/mortgage, with the possible exception of some extra legal expenses if one person thinks they can do something they can't do and the other person has to get a court order to prove they can't. As long as you both know what you can't do, you're cool. Keep in mind this does not apply to common law couples. For them, whose name(s) is/are on the deed is the only thing that matters (in the absence of a cohabitation agreement.)
Whenever you "don't need to" be listed as a borrower, it is very much to your advantage to be so listed. You get the benefit of improving your credit score if the loan is managed properly, and any loan that either one of you can afford alone is certain to be managed properly. So while the unneeded spouse may not be taking any risks by not being included on it (assuming it's a marital home) they are possibly giving up some benefit.
First thing to ask about is will you qualify for the same rate as a single borrower as you would if the two of you co-signed? There's a good chance you would not.
There will be effects on your credit score. If you co-sign and then are responsible with your payments, then both of your credit scores will benefit. Of course, if you have issues paying, then both of you will be hurt.
The above are pretty minor issues. While you are married it doesn't matter much in whose name things are.
Where issues come up is if you ever get divorced. A female lawyer friend of mine married a lawyer colleague. He insisted on putting the mortgage for their mansion in his name and paying for it out of his salary while she paid for living expenses for the two of them. Since he was making good money she chose to go into nonprofit law making very little money (much of her work was pro bono) since they didn't need it. They later divorced and the judge awarded her no alimony and no ownership of the house or their other expensive items. She was suddenly extremely poor while he was very rich. Not saying this is common--these guys were bloodsucking lawyers and I think he planned for that situation. Different states have different laws about community property and some won't consider it shared if it is in one person's name and paid for by them.
Unfortunately I know very little about Canadian law, so I can't say if this type of thing could happen there.
We often see stories here about divorced people giving each other problems by not paying joint debt, using credit cards in their spouse's name, etc. so maybe there are issues being joint as well. Moral of the story: from a financial perspective, try to avoid divorce.
protected by Chris W. Rea Jun 20 '17 at 12:27
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