Best way to Compensate Cosigner on Mortgage

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Best way to Compensate Cosigner on Mortgage

Meagan Peters
New to Real Estate · Ottawa, Ontario · Member since 2021 · 40 posts · 23 votes

Hello everyone!

I'm about to put in an offer on a duplex in Moncton, NB but will need a cosigner for the mortgage, as I do not qualify (I just graduated university and haven't had a stable income for long enough).

The purchase price is 380k and I'm doing a 5% down, owner occupied loan. I have enough capital for the down payment, closing costs, renos, etc. and will be handling everything else as well (finding/screening tenants, management, etc.) so essentially all I need is someone to cosign on the mortgage.

My question is: what is a reasonable/fair compensation to offer the cosigner? I know everyone will say "it's whatever you two agree on", but I would like to have something to offer, as I'll be presenting this deal/opportunity to multiple people and want to make it seem beneficial to them.

I was thinking it could make sense to give them part equity in the property, but I'd love to hear any insight/suggestions from anyone who has many been in a similar situation or if you imagine yourself as the cosigner, what would you feel would be a fair compensation.

Thank you!

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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
3y

@Meagan Peters

there's no need to do something complicated or give up equity this early in your investing journey.

if you can't find a co-signer who is a family member who will co-sign just to assist you without compensation... then don't move forward.

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y
    Quote from @Meagan Peters:

    Hello everyone!

    I'm about to put in an offer on a duplex in Moncton, NB but will need a cosigner for the mortgage, as I do not qualify (I just graduated university and haven't had a stable income for long enough).

    The purchase price is 380k and I'm doing a 5% down, owner occupied loan. I have enough capital for the down payment, closing costs, renos, etc. and will be handling everything else as well (finding/screening tenants, management, etc.) so essentially all I need is someone to cosign on the mortgage.

    My question is: what is a reasonable/fair compensation to offer the cosigner? I know everyone will say "it's whatever you two agree on", but I would like to have something to offer, as I'll be presenting this deal/opportunity to multiple people and want to make it seem beneficial to them.

    I was thinking it could make sense to give them part equity in the property, but I'd love to hear any insight/suggestions from anyone who has many been in a similar situation or if you imagine yourself as the cosigner, what would you feel would be a fair compensation.

    Thank you!


     If I was cosigning, I would want the percentage of equity I am putting in the deal. For example, if I am putting in 50% equity I would want 50% of the deal. Now that is just me, others may do it for less or if it's a friend and family then that would be different. 

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  • Meagan Peters
    OP
    New to Real Estate · Ottawa, Ontario · Member since 2021 · 40 posts · 23 votes
    3y

    @Chris Seveney

    That makes sense! What exactly do you mean by "how much equity you're putting in the deal"? Like the amount of mortgage you're signing off on?

    Because I'm essentially brining in all the cash so to speak and doing all the hands on work as well so I'm not sure how do divide that in terms of equity haha

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  • Aaron LovellPro Member
    Rental Property Investor · Moncton N.B · Member since 2021 · 5 posts · 0 votes
    3y

    Hi, my names Aaron, I’m an active investor in the Moncton area. I could only give my personal opinion, I have not yet did a deal with another needing a cosigner myself, but I would see it as everybody wants something different around their own financial state, some may want a part of equity, Some could want just a cash offer upfront (a lump sum of some sort) some could go for monthly cash flow off the units or building itself. I would say try and see what the person you’re talking to may want and ask them more or less what would they like to see out of the deal that you both can capitalize on. That can give you a better perspective on what to offer them and how much you would be willing to offer.

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  • Meagan Peters
    OP
    New to Real Estate · Ottawa, Ontario · Member since 2021 · 40 posts · 23 votes
    3y

    Thanks for the input @Aaron Lovell! 

    On another note, I'd love to connect! I'm a newbie and always looking to connect with like-minded people. I'd love to chat about the moncton market and learn more about your investing journey thus far ;) 

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  • Aaron LovellPro Member
    Rental Property Investor · Moncton N.B · Member since 2021 · 5 posts · 0 votes
    3y

    No problem! Yeah, I’m most active on instagram, but feel free to reach out anytime. 

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  • Meagan Peters
    OP
    New to Real Estate · Ottawa, Ontario · Member since 2021 · 40 posts · 23 votes
    3y

    Instagram is great! What's your handle @Aaron Lovell

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  • Aaron LovellPro Member
    Rental Property Investor · Moncton N.B · Member since 2021 · 5 posts · 0 votes
    3y

    link should be in bio, if not _alovell_ @Meagan Peters

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  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    3y

    @Meagan Peters

    there's no need to do something complicated or give up equity this early in your investing journey.

    if you can't find a co-signer who is a family member who will co-sign just to assist you without compensation... then don't move forward.

    1Reply
  • Meagan Peters
    OP
    New to Real Estate · Ottawa, Ontario · Member since 2021 · 40 posts · 23 votes
    3y
    Quote from @Nicholas L.:

    @Meagan Peters

    there's no need to do something complicated or give up equity this early in your investing journey.

    if you can't find a co-signer who is a family member who will co-sign just to assist you without compensation... then don't move forward.

    I completely understand this point and Ideally I would like to have the deal be entirely my own, but at the same time I feel like 50% of a deal is better is better than 100% of no deal, no?

    If I can;'t find someone who will co-sign without compensation, how do you suggest I get started considering I don't personally qualify?

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  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    3y

    Dividing up equity is complicated and permanent unless the equity partner is bought out, and I just don't think new investors should tie themselves in knots to get their first property.

    You won't like this answer but I think you should wait until you've saved up enough / increased your income enough to do it yourself.

    1Reply
  • Meagan Peters
    OP
    New to Real Estate · Ottawa, Ontario · Member since 2021 · 40 posts · 23 votes
    3y

    @Nicholas L.

    Yeah, that's a very good point. Sort of another question, if I am to find someone to cosign without compensation, do you know how I could remove their name from the mortgage in the future?

    As far as I know I can do that when I refinance, but would I personally have to qualify for the new mortgage on the property? Or it would be based on the performance of the property at that point? 

    Sorry for all the questions, you just seem very knowledgeable haha

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  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    3y

    Correct - the only way to take someone off a mortgage is to refinance, or to pay the mortgage off.  And when you refinance you're not changing the existing loan, you are paying the old loan off / extinguishing it, and taking out a completely new loan.  So yes, you would need to qualify for the new loan on your own in order to pay the old loan off and remove the co-signer from any tie to the property.

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  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    3y
    Quote from @Nicholas L.:

    Dividing up equity is complicated and permanent unless the equity partner is bought out, and I just don't think new investors should tie themselves in knots to get their first property.

    You won't like this answer but I think you should wait until you've saved up enough / increased your income enough to do it yourself.


     I am in agreement that dividing equity is complicated. I have heard the old 50% of something is better than 100% of nothing argument many times and I have used it a few times myself. Lol.
    With  that being said 100% of nothing is still better than 50% of a bad situation.

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