Who can be a mortgage guarantor and who is he?

Types of liability to the bank

It should be taken into account that at first glance, the guarantor and co-borrower are one person who approaches the bank to act as an additional guarantee of loan repayment. It is the guarantors and the co-borrower who will be obliged to make payments under the agreement if the borrower, for some reason, stops making payments.

It should be borne in mind that these concepts are different and primarily differ in the type of responsibility. Responsibility allocated:

In practice, credit institutions prescribe joint and several liability for both the guarantor and the co-borrower. This is done in order to cover the maximum risks of non-repayment of credit debt.

Guarantors and co-borrowers: difference in rights to property

Neither one nor the other receives ownership rights to the object purchased with credit money. The exception is when a co-borrower or guarantor is listed as the buyer in the purchase and sale agreement. By default, spouses who are in a registered marriage become the owners. For example, when a husband and wife take out a mortgage, the purchased property becomes marital property. In other situations, the guarantor and co-borrower may sign an additional agreement with the main borrower, which will spell out all the conditions. For example, the guarantor becomes the owner if he pays the debt instead of the main borrower. It is also possible to agree on ownership rights in advance, provided that all participants pay equally for the loan.

Who is a guarantor?

A guarantor is an individual who, along with the borrower, has assumed the obligation to repay the loan in full. It turns out that this is the second person after the borrower from whom the bank can legally demand repayment of the debt. It is important to note that all rights and obligations must be specified in the contract. In this case, the agreement is drawn up in two copies having equal legal force. According to the terms and conditions of the financial company, not everyone can act as a guarantor. He, like the borrower, is carefully checked by the credit institution. Let's consider in the next section what a financial company may require from a guarantor under a loan agreement.

What can the bank require from the guarantor?

Each financial company has its own requirements for a guarantor. However, in general, the requirements in banks are similar.

The bank may require:

Banks may also require the guarantor to provide collateral. Only property that is fully owned by right of ownership can act as security. In practice, the collateral is a vehicle, property or securities.

What rights does the guarantor have?

It should be understood that the guarantor has not only obligations, but also rights. Let's take a closer look at what each guarantor can guarantee.

Rights:

• study the documents that the borrower provided to the office of the financial company to obtain a loan
• carefully study the loan agreement, even in the presence of your own lawyer
• ask various questions regarding the contract
• amend the contract
• refuse to sign a loan agreement if you are not satisfied with some points
• receive a detailed report from the bank on the amount of debt and payment of fees
• submit a demand to the financial company if it violates the terms of the contract and violates the rights of the guarantor
• if the borrower stops making payments, the guarantor has the right to request a credit holiday or debt restructuring

It turns out that the guarantor under the contract is endowed with greater rights. The only negative is that he cannot refuse the guarantee agreement at his own request, after signing the agreement. Therefore, you must first study everything and only then agree.

Who has the right to guarantee for the mortgage debtor?

A guarantor for a mortgage loan is a citizen who guarantees the creditor bank the timely return of borrowed funds provided to another person - the borrower - for the purchase of living space.
A citizen who assumes the functions of a guarantor for a mortgage issued to another entity is responsible for repaying this loan jointly with the debtor himself, if the recipient of the housing loan - the debtor - does not fulfill the obligation secured by an appropriate guarantee. This rule is spelled out in paragraph one of Article 363 of the Civil Code. Anyone who guarantees the bank the repayment of someone else's loan risks their personal financial well-being without any benefit for themselves. This is why it can be very difficult to find the right person willing to take on the responsibilities of a mortgage guarantor. The guarantor for a mortgage loan is often one of the close relatives of the borrower (for example, parents, brothers, sisters), although the law does not limit the list of persons who can vouch for the debtor to the lender.

If there is a close relationship between the borrower and the guarantor, this situation is considered the most favorable. This is explained by the fact that controversial issues and conflicts caused by the repayment of credit debt can be resolved in this case in a family manner, that is, peacefully. This is especially true for a mortgage loan, since it is issued for a long period and is characterized by a large size.

A citizen who has officially vouched for the debtor on a mortgage loan to the creditor bank performs the following functions:

• guarantees the lender timely repayment of the loan issued to the borrower (clause one of Article 361 of the Civil Code);
• if the debtor has problems repaying the loan (for example, late payments), the guarantor actively encourages him to resolve the issue as quickly as possible;
• If the failure to pay the mortgage becomes malicious, the lender has the right to contact the guarantor (guarantor) with a demand for payment of the loan in full. The citizen-guarantor, who is responsible with his own funds to the creditor, repays the debt obligations of the borrower, if such a requirement is received from the bank.

What are the requirements for a guarantor for a targeted housing loan?

Lending banks have strict requirements for guarantors, as well as for borrowers. A citizen who meets the following criteria can guarantee the repayment of a targeted housing loan:

1. Age – minimum 21 years, maximum 65 years.
2. Russian citizenship.
3. Permanent registration within the Russian Federation (as a rule, in the territory within the boundaries of which the creditor bank operates).
4. Documentary proof of official earnings of sufficient size.
5. Positive reputation confirmed by credit dossier materials.

Thus, a reliable guarantee for a mortgage loan can be provided either by a relative of the borrower or by any other entity willing to assume such obligations (for example, an acquaintance or friend of the debtor). The requirements for mortgage guarantors may vary depending on the lending bank.

Who is a co-borrower?

A co-borrower is a person who practically acts as a second borrower on the loan and guarantees repayment of the debt in full, taking into account accrued interest. Joint and several liability is always applied to co-borrowers. In practice, it is necessary to attract a co-borrower for a mortgage. In this case, the second spouse must act as him. However, there are other agreements under which it is worth involving a co-borrower. This need arises if the borrower does not have an official job or has a damaged credit history.

In order to act as a co-borrower, you must provide a complete package of documents and undergo a thorough check by the financial company. Banks give preference only to employed citizens who have high salaries and a positive credit file. It is also worth noting that any legally competent citizen over the age of 18 who fully complies with all the requirements of the financial company can act as a co-borrower.

Responsibilities of a co-borrower

Each co-borrower has responsibilities under the loan agreement. You should study them before signing a loan agreement.

Responsibilities:

• make payments under the contract according to the approved payment schedule
• repay the debt in full if the bank makes demands in court
• comply with all clauses of the loan agreement and bear responsibility if incorrect information is provided
• represent the interests of the borrower in court if the bank sues as a result of violations of the terms of the agreement
• renew the insurance contract if this requirement is provided for in the contract (for a mortgage)

Co-borrower's rights

In addition to responsibilities, each co-borrower also has rights. Let's take a closer look at what they can expect after signing a loan agreement.

Rights:

• request information about the repayment of the contract, the amount of the monthly payment and the total debt
• make a partial early payment and change the terms of the loan agreement
• make payments ahead of schedule (loan repayment)
• ask questions before signing the contract
• the co-borrower can refuse life insurance

All rights are always specified in the contract. If necessary, you can always request an agreement template from a credit specialist before the transaction and study it carefully.

Characteristics of the guarantee agreement

A guarantor is a kind of insurance for a bank that is not sure of the borrower’s solvency. The guarantor begins to fulfill obligations under the loan agreement only in the event of overdue debt.

According to the agreement, the bank may have the right to write off without acceptance from the guarantor’s accounts the amount necessary for repayment if the borrower does not have funds in the account and the next installment has not been paid. However, the bank has no obligation to notify the guarantor about the write-off. If there is no such clarification, then the transfer of responsibility is possible only by court decision.

When a legal entity receives a loan, the individual owner must act as a guarantor. A legal entity can also be a guarantor for a loan to an individual (for example, the borrower’s employer), but such schemes are rarely used due to the laboriousness of assessing the solvency of companies.

If obligations are fulfilled for the borrower, the guarantor has the right to recover from him the paid amounts through the court.

Responsibility for loan repayment does not arise in the following cases:

• death of the borrower (the loan is repaid by insurance payment);
• when changes are made to the loan documentation, but the guarantee agreement remains unchanged;
• if the rock of guarantee has expired.

The guarantee agreement is usually concluded for the loan term plus 3 years due to the statute of limitations for such disputes. Responsibilities under the contract can be inherited.

The credit history of the guarantor depends on the fulfillment of his obligations under the guarantee agreement. He is obliged to fulfill his obligations within the period specified in the bank’s notice. Until this moment, the overdue period of the loan does not affect his credit history.

What is the difference between a guarantee and an assignment?

In order to understand the difference between a guarantee and an assignment, it is necessary to understand what each concept means. A guarantee is a type of contractual relationship that is documented, under which a citizen undertakes to repay the loan amount. An order is only a type of agreement under which one party agrees to fulfill the obligations assigned to it. This is kind of a common request for everyone. It turns out that in the second case, a citizen can simply act on behalf of the borrower, namely, make a payment according to the schedule or obtain the necessary information.

The guarantor has the right to the apartment

A distinctive feature of the guarantor is the fact that even after repaying the loan for the borrower, he cannot qualify for mortgage housing. At the same time, he has the right to demand through the court to return the amount paid, which is done within the framework of regression risk. The guarantor may demand the imposition of a penalty on the borrower's property necessary to begin the procedure for returning the money.

In this case, the right to claim must be proven by providing a certain list of documents:

• mortgage agreement;
• guarantee agreement;
• document on the assignment of the right of claim;
• payment documents confirming loan payment.

The guarantor first notifies the main borrower of the desire to return the amounts. The written request must indicate the full amount, which may include mortgage payments, accrued interest, fines and penalties. If the guarantor refuses to return the expenses, he has the right to go to court, and after a positive decision is made, bailiffs can intervene in the case.

If the situation regarding the return of paid amounts on the loan is related to the fact that the citizen has only one home or the proceedings concern minor children, then the matter may become significantly more complicated. Finding out all the circumstances and making a decision by the court may take a long time and may not bring the guarantor the desired result in the form of a return of the amounts spent on repaying the loan.

What is the difference between a surety and a power of attorney?

What a guarantee is was discussed above. To understand the difference, let’s look at what a power of attorney is under a contract. A power of attorney is an official document according to which the borrower grants the rights of another citizen. In this case, the powers are strictly specified and specified in the document.

If there is a document, the authorized person can:

• make payment
• request information regarding the contract
• take statements, etc.

If there is a power of attorney, the bank does not have the right to demand repayment of debt from the principal. It is also worth noting that often this document is drawn up only in the presence of a notary and for a specific period. The cost of the service is no more than 3,000 rubles.

Advice for guarantors

If you understand all the risks and responsibilities, then before signing a guarantee agreement you should:

• Carefully assess the financial condition of the borrower,
• Check whether he has property that can serve as security for fulfilling obligations,
• Assess the level and stability of the borrower’s income and his ability to pay his obligations.
• The guarantee agreement itself should be carefully studied and all questions asked of bank employees before signing. The best option in case of doubts or obvious risks is to obtain advice from a third-party independent lawyer. The borrower and bank employees act as interested parties in this case and can present information from a convenient point of view, which may entail hiding some important information for the guarantor. The guarantee agreement is signed in two copies, one of which remains with the guarantor, and the second - with the credit institution.
• Attention should also be paid to studying the borrower’s lending agreement, in particular the sections on penalties and interest, something that may affect the guarantor in the event of the borrower’s failure to fulfill its obligations.

If you have the opportunity to choose between the option of a guarantor or a co-borrower, then you should carefully weigh the pros and cons. Co-borrowers have rights to real estate purchased on credit, but at the same time they are directly responsible for its payment. There is another guarantee option, such as taking out a mortgage loan with a share of the guarantor.

This option does not contradict the law and is often used if relatives act as guarantors or if there are plans to live together in the mortgaged property.

Guarantor and co-borrower - 5 differences

It should be noted that the guarantor differs from the co-borrower not only in the type of responsibility. Let's note five main differences:

As you can see, such similar concepts have a number of differences.

Can the guarantor take out a mortgage for himself later?

If you agree to participate in the process of applying for a mortgage as a guarantor, you should take into account that in the future there may be difficulties when applying for a loan for your own needs. A mortgage is always associated with a long term of the credit relationship, which on average reaches 15-20 years. During such a long period, a person may want to take out a mortgage for himself.

In this case, the following difficulties may arise:

1. The emergence of obstacles in obtaining a loan due to the presence of a guarantor status;
2. Search for additional loan collateral due to increased obligations;
3. Impossibility of unilaterally refusing a guarantee after signing the contract.

If the guarantor’s income is insufficient to pay for the previously issued loan by the main borrower and the new loan, then the application for the provision of mortgage funds will be rejected. Today it is possible to carry out the procedure of replacing one person with another if he agrees to act as a guarantor, but such a practice is not welcomed by banks and is associated with a large number of bureaucratic difficulties.

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Who is better to be and why?

When drawing up a loan agreement, citizens often ask themselves the question: what is better, to be a guarantor or a co-borrower? In fact, there is no clear answer to this question, since everything is determined personally.

For example, it is better to be a co-borrower if:

• a mortgage agreement is drawn up, and under the agreement, ½ of the purchased property will belong to the co-borrower
• when the borrower is a spouse

It is advantageous to be a guarantor if the borrower draws up a receipt before signing the contract. According to the document, the borrower undertakes to return all funds deposited to the bank in full. In another case, the guarantor risks taking on obligations and paying the debt for someone else. It is no secret that in practice, close people often help each other out, after which the borrower disappears with the money and the guarantor has to bear responsibility.

In conclusion, it can be noted that at first glance, identical concepts differ significantly from each other. Before concluding an agreement, it is important to carefully study the terms of the agreement and, if necessary, ask questions to the loan specialist. It is important to understand that if you do not like some points, you can always ask for changes or refuse the loan.

Liability of the guarantor to the bank

Before agreeing to the requests of family or friends, you need to obtain enough information about the responsibilities assigned to the mortgage guarantor, as well as the risks associated with this.

Rights and obligations

The main obligations of the guarantor are related to finance and the documentary side of the loan:

1. Return to the bank the principal debt on the loan, as well as the amount of interest, fines, and penalties due (if the borrower fails to fulfill its obligations).
2. Provide all documents requested by the bank before applying for a mortgage.
3. Notify the lender in a timely manner about changes in passport and address information.

But in addition to duties, there are also rights:

1. Refuse to pay the debt on the borrower's obligations. In this case, the bank will go to court, but if the loan recipient does not have any property comparable in value to the debt, the guarantor will have to pay the debt to the creditor.
2. Apply to the court with a demand to recover from the borrower the amount of money paid to repay the loan.
3. The right to officially be considered a creditor after full repayment of the borrower's debt to the bank.

Requirements

Before processing loan documents, the future guarantor of the transaction has the right to require the borrower and the bank to confirm certain data:

• availability of income, property;
• the absence of hidden factors that will not allow the borrower to fulfill his obligations to the bank;
• the legal purity of the transaction (the surety agreement can be shown to your lawyer).

Who are the co-borrower and guarantor?

First, we need to define these terms.

In the Civil Code of the Russian Federation there is the concept of “borrower”. This is a citizen who, under the terms of a loan agreement, takes money or things into ownership from another citizen or legal entity, pledging to return an equal amount of money or the same number of things within a specified period.

But such a term as “co-borrower” does not appear in the legislation of the Russian Federation, but at the same time is widely used by banks when concluding loan agreements.

Rights and obligations of a co-borrower

In addition, in mortgage lending, the bank distinguishes from the co-borrowers a title co-borrower, a person who acquires a property in common ownership and performs, on behalf of the co-borrowers, with their mutual consent, actions for processing, receiving and servicing the loan. This is one of the spouses when applying for a mortgage.

The co-borrower participates in concluding a loan agreement in the following cases:

1. If the borrower does not have the required level of income to apply for a loan, or income at all. Attracting a working co-borrower, be it a spouse or another person, will increase the total income, not only the chances of receiving a loan will significantly increase, but also, if necessary, loan funds.
2. The obligation to become a co-borrower falls on the second spouse under the mortgage agreement due to the norms of the Family Code of the Russian Federation, regardless of whether the co-borrower spouse currently has a job. Of course, in this case, the proper amount of income is provided by the first spouse.

Rights and obligations of the guarantor

A citizen is not limited in choosing a guarantor; it can be either an individual or a legal entity.

According to the civil legislation of our country, the guarantor is liable to the creditor (bank) only if the debtor fulfilled only partially or did not fulfill at all the obligation that is secured by this guarantee. But the law provides that there may be conditions different from these, which are prescribed in each specific agreement.

This literally means the following:

At the same time, the guarantor cannot be called a co-debtor, since the guarantee is a separate obligation of the guarantor to the creditor.

You need to know that a surety agreement must be drawn up in a written document, otherwise it is invalid.

The guarantor can exercise his right not to fulfill the obligation until the creditor has the opportunity to collect from the debtor. The legislator has given him the right to raise his objections to the creditor, instead of the debtor, even if the latter recognizes the debt or renounces it, which to some extent protects the guarantors from hasty claims of banks.

Difference between co-borrower and guarantor

These subjects of credit relations fulfill obligations under the loan and are responsible for its non-payment.

So what is the difference between them:

1. First of all, the difference is not only in terminology, but also in the fact that the guarantor does not have the same rights as the co-borrower, who has the same right to the amount received on credit (or housing) when drawing up a loan agreement as the borrower. The guarantor cannot be a co-owner of either the residential premises or the funds being credited.
2. When issuing a loan, its amount and term of issue are affected by the income of both the borrower and the co-borrower. The guarantor’s income does not affect such factors, but his solvency is still assessed so that he can independently repay the debt if necessary.
3. The liability of the guarantor, in contrast to the co-borrower, arises only if the borrower for some reason does not pay the bank the debt in full or part of it. The co-borrower is responsible for systematic payments on the loan.

Taking into account the above, we can conclude that it is incorrect to identify the guarantor and the co-borrower. If you need to choose a particular role for yourself, it will be useful to understand the concepts presented and the differences between them.