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What is a Guarantor?

A guarantor is someone who agrees to pay a mortgage or loan if the original borrower cannot, usually because they do not meet the lender’s qualification criteria.

The guarantor will be required to meet certain requirements, such as having a good credit score, a stable income, and a low debt-to-income ratio.

Why is this term important?

Guarantors are important as they can help homebuyers secure the mortgage approval they need for the home they want. By having a guarantor, the lender can feel more secure when approving the mortgage loan because they know that the guarantor is able to step in to make payments if the original borrower cannot.

Here is an example:

For example, a homebuyer is applying for a mortgage but, due to an issue with their credit check, the bank won’t approve them for the full amount that they need. The homebuyer asks their parents to act as their guarantor and their parents agree, helping them to secure the mortgage. Now, if the homebuyer misses a mortgage payment, the bank can approach their parents to make the required payment.

Related Terms

Mortgage

Related Resources

Mortgages 101: Get to know the basics

What is a mortgage? A mortgage is a loan used…
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