How to handle rejections in securing a mortgage in Kazakhstan
In the world of home buying, two terms often come up: co-borrowers and guarantors. While they may seem similar, they play distinct roles in mortgage applications.
A co-borrower shares ownership of the property and is equally responsible for the mortgage payments. Both co-borrowers are listed on the mortgage loan and the property title, and the lender considers both their incomes, assets, liabilities, and credit histories when approving the loan. This means that if one co-borrower is unable to meet their obligations, the other is equally liable.
On the other hand, a guarantor does not have any ownership interest in the property. Instead, the guarantor provides additional security by agreeing to cover any missed repayments if the primary borrower defaults. Guarantors are typically close family members who must demonstrate sufficient creditworthiness and financial capacity to cover the loan if needed, but they are not involved in day-to-day mortgage payments or ownership decisions.
There are several key differences between the two:
- Documentation and signing: Co-borrowers sign the mortgage note and the security instrument, while guarantors do not sign the security instrument but sign the loan application or guarantee agreement to assume responsibility if necessary.
- Removal from obligation: Removing a co-borrower usually requires refinancing or selling the property, whereas a guarantor might be released after a period of timely payments or through a remortgage, depending on the lender’s policies.
- Risks and benefits: Co-borrowers share both the benefits of ownership and the risks of missed payments affecting their credit, while guarantors risk their credit primarily if the borrower defaults but do not gain ownership benefits.
If a mortgage is taken out during marriage, spouses automatically become co-borrowers, with exceptions for prenuptial agreements specifying property conditions. However, a friend, colleague, acquaintance, or anyone who meets the bank's requirements can be chosen as a co-borrower. If the primary borrower needs a co-borrower but does not want to share ownership, they can involve a guarantor instead.
A co-borrower, even if they waive their right to the property, remains responsible for the loan repayment as long as they are listed in the contract. If the primary borrower misses payments, the bank has the right to demand repayment from the co-borrower. A guarantor's income is considered during loan processing, but they only have to make payments in case of default.
A co-borrower can live in the apartment, manage it, or rent out their share as long as they have a share in the property rights. If a co-borrower waives their right to the property, they forfeit their share in the mortgaged apartment. The shares for the co-borrower and primary borrower are not necessarily equal.
In summary, co-borrowers jointly own the home and are equally liable, while guarantors provide backup liability without ownership rights. It's essential to understand these differences when considering a mortgage application to ensure a clear understanding of one's responsibilities and rights.
[1] LegalZoom. (2021). Co-Borrower vs. Guarantor: What's the Difference?. Retrieved from https://www.legalzoom.com/articles/co-borrower-vs-guarantor-whats-the-difference
[2] NerdWallet. (2021). Co-borrower vs. co-signer: Know the difference. Retrieved from https://www.nerdwallet.com/blog/loans/mortgages/co-borrower-vs-co-signer-know-the-difference/
[3] Bankrate. (2021). Co-borrower vs. co-signer: What's the difference? Retrieved from https://www.bankrate.com/mortgages/co-borrower-vs-co-signer-whats-the-difference/
[4] Investopedia. (2021). Co-Borrower vs. Guarantor. Retrieved from https://www.investopedia.com/terms/c/co-borrower.asp
[5] Zillow. (2021). Co-Borrower vs. Co-Signer. Retrieved from https://www.zillow.com/mortgage-learning/co-borrower-vs-co-signer/
In the realm of personal-finance, understanding the differences between co-borrowers and guarantors is crucial when applying for a business loan or a mortgage. While both parties may offer financial support, co-borrowers share ownership and joint responsibility for the loan repayments, as well as consequences if obligations are not met, whereas guarantors provide security by agreeing to cover missed repayments in case of default, but they do not hold ownership rights.
