Co-signing on a mortgage loan for someone can mean the difference between them being approved or not. But with co-signing comes great responsibility. Let’s outline the pros and cons so you’ll be able to answer the age-old question:
To co-sign or not to co-sign?
First, what is a co-signer? A co-signer is someone who applies for a loan with someone else and agrees to pay that debt if the borrower defaults on the loan. They don’t have an interest in the property or the sales transaction, such as the property seller, the builder, or the real estate agent. It’s someone with great credit that will boost the borrower’s financial credibility, typically a parent, sibling, significant other, friend.
Why would you need a co-signer? You need good credit to qualify for a loan, so if you’re just starting out and haven’t had the chance to build up credit, or maybe you just need more income to qualify, a co-signer might be the difference between getting approved or not.
Let’s look at the main pros and cons. Since the lender will look at the borrower and co-signer’s credit histories, income, etc. as a whole, the borrower will be able to get better loan terms; for example, a lower interest rate and qualify for a higher loan amount. And, of course, the borrower gets the opportunity to buy a home when they might not have otherwise been able to.
Now, for the co-signer, you have to make sure you fully trust that the person you’re co-signing for will make their payments each month, on time, and not miss a payment. Because when you co-sign for someone, you are legally responsible to pay that loan if the borrower stops paying. Also, consider that this loan will become part of your credit report and affect your debt-to-income ratio and ability to buy another property. If the property is foreclosed upon, that will be part of your credit history. If you want to buy a home while you’re still listed as a co-signer on this other mortgage, you’ll need to get rid of that debt either by selling the house or refinancing that mortgage to get your name off of the loan.
So… to co-sign or not to co-sign? f you have absolute trust and faith in the person you’re co-signing for and you would have no problem repaying the debt if that person defaults, then yes, go for it. It’s definitely an act of love that can truly bless someone.
If you have questions about co-signing on a loan, getting pre-approved for a loan, or you just want to say hi, visit https://www.homespiremortgage.com/loan-officer-search/ to find a Homespire Loan Officer near you.