How to Use a Co-Signer to Get a Mortgage
If you’re looking to buy or refinance a home but are having trouble qualifying for a mortgage, your only option may be getting a co-signer.
A co-signer is someone who puts their name on the mortgage to guarantee the debt will be paid if the primary borrower defaults. Co-signers are frequently used by young people who are just beginning to establish their credit.
In many cases, a co-signer is used to help a borrower obtain better mortgage terms than they could have without one. Having a cosigner allows the borrower to get a loan with a lower interest rate, a smaller down payment or a higher loan amount than they could have obtained by themselves. Co-signers are most helpful in cases where the primary borrower’s income is insufficient to qualify for the loan desired.
Choosing a co-signer
When seeking a co-signer, borrowers usually look to relatives, often their parents, who are who are willing to help their young family members when they are just starting out. The key thing is, your co-signer should be someone you know and trust. Neither of you want to be let down by the other. Be careful who you choose, as if you default on the loan, it can, and almost inevitably will ruin the relationship.
What the co-signer should be aware of
Being a co-signer on a mortgage is not something to be taken lightly. As co-signer, you have a responsibility for the debt of an actual piece of property. If the primary borrower can’t make the payments, it will be your responsibility. If the loan goes into default, it will affect your credit report.
Once the loan has been made, you’ll need to keep alert for financial trouble signs. Things like past-due notices are mailed to the primary borrower’s residence, not to you, so early signs of trouble may go unnoticed. The co-signer and the borrower should communicate on these issues, and it is fair for a co-signer to ask to be updated when and if the borrower is having money troubles.
Co-signers should be strongly aware that there will still be marks on their credit report every time the primary borrower makes every payment on time. The monthly mortgage payments will count as a personal obligation of your own, reducing the amount of credit you have available for your own purposes.
Generally, a co-signer will stay on the mortgage for a few years until the primary borrower can establish enough credit or income to assume full responsibility for the loan. At that point, the co-signer can request to be taken off the note by asking the lender to re-qualify the loan with just the primary borrower.
There can be serious financial consequences for the co-signer if the borrower fails to make payments. Be sure that the person you are signing for is someone you fully trust to have your best interest at heart.