What does it mean to be a Guarantor?

If a home buyer doesn’t quite have the financials to qualify for the mortgage they need, sometimes a Guarantor is engaged, usually a parent, relative or close associate. What does being a Guarantor mean, and what are the risks?

To answer this, we asked Keith A. Schuman, a leading real estate attorney in New York City and an expert in residential law at Schuman & Associates, to break down for us what it means to be a Guarantor.

Keith Schuman is the author of A Guide to Purchasing a Home in New York, a complete overview of the home buying process and has written many articles on real estate matters.  Keith is a frequent guest lecturer for New York real estate brokers and is a New York State Certified Real Estate Continuing Education Instructor.

Keith is a graduate of the University of Pennsylvania (B.A., summa cum laude) and Cornell University Law School (J.D.) and has extensive experience in transactional real estate work.  He represents developers, owners, operators, purchasers and sellers of commercial and residential properties throughout the United States.  He also represents landlords and tenants in commercial lease transactions, borrowers and lending institutions in commercial and residential re-financings, boards of cooperative buildings, and sponsors in the development of residential cooperatives.

1. If you are asked to be a Guarantor for a mortgage, what does it involve?

A Guarantor for a mortgage loan is a person who guarantees to pay a borrower’s debt in the event the borrower defaults on a loan obligation. A Guarantor will be expected to have a good credit history and sufficient income to cover the loan payments if the need arises.  The Guarantor’s obligation to guarantee the borrower’s loan obligations is binding until the loan is repaid.

2. What are the risks associated with being a Guarantor?

The Guarantor becomes liable for repayment of the loan if the primary borrower is unable to make the required payments. In addition, the Guarantor may be required to cover any expenses including late fees and legal costs, incurred as a result of the borrower’s late payment or default.

3. What are the differences between a Guarantor and a co-signer?

A Guarantor has no ownership interest in the mortgaged property.   They are not on the Deed or Stock Certificate and have no claim to the property.  A co-signer, on the other hand, is a co-owner of the mortgaged property, and their name will appear on the ownership document (Deed or Stock Certificate). In addition, a co-signer signs the mortgage note and is contractually obligated to repay the debt without the lender having to take any specific action to request payment from the co-signer.

(For more information about the differences between being on a mortgage vs. Deed, see this article: What if only your spouse is on the mortgage or title?)