Some people think being a guarantor is like vouching for someone. “Yes, he is a good person and he will pay”. And in a way, this is true, but it is also saying “I am so confident that he will pay, that I will guarantee this. So, if he doesn’t pay, I’ll pay!” Yes. When he doesn’t pay, you are 100% responsible for that loan whether it is for a car or for a house. To the lender, there is no difference. They will get their money the easiest way they can. And if it is easier to garnish your wages because your son is unemployed, they’ll do it. It doesn’t matter that you have no control or don’t possess the property obtained through the financing. And if they cannot recover their costs after repossessing the property and selling it, they can sue you for it. So carefully consider this before you become a guarantor.
Another thing people don’t realize is that even if the person you guaranteed is paying, this guarantee affects your ability to borrow more money. The bank knows that you are ultimately responsible for the loans you guarantee. There is no way to determine if the person you guaranteed is reliable, so the safest route is to grant the loan only if you can support both loans at the same time. Most people cannot support two mortgages at the same time. I am not telling you to not help your family, but be aware and plan ahead. If you plan to get a mortgage soon, then do not guarantee someone else’s mortgage. However, if you are not planning to buy in the next few years, and your siblings will be able to qualify for the mortgage by themselves in a year or two, then you can consider helping them out. I have seen this work successfully.
