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What you need to know before becoming a Mortgage co-signer

June 8th, 2017  |  Home

Are you contemplating being a mortgage co-signer? Deciding to become a mortgage co-signer is a major financial decision and shouldn’t be taken lightly. In a best case scenario, if everything works out, you can help someone qualify for a mortgage that wouldn’t otherwise. In a worst case scenario, your credit score could be damaged if the co-signer fails to repay their mortgage based on the terms of the agreement. It’s important to understand the risks and responsibilities before signing on the dotted line to be a co-signer.

Why be a mortgage co-signer?

Are you looking to help out a family member or close friend qualify for a mortgage loan that they wouldn’t otherwise? That’s when co-signing on a mortgage would help. Those with poor credit or no credit may need a co-signer to qualify for a mortgage. Mortgage lenders may view the mortgage borrower as high risk. As a mortgage co-signer you’re offering to pay the mortgage in full if the borrower fails to do so. Not only that, if the borrower is late on the payments or fails to repay them, it will impact your credit score. It’s as if you failed to repay the mortgage yourself. Deciding to be a mortgage co-signer is a major financial decision not to be taken lightly.

Responsibilities of a mortgage co-signer

As a mortgage co-signer, you have several key responsibilities. When you’re a co-signer, you’re promising the lender you’ll make the mortgage payments in full should the borrower fail to do so. The borrower may have every intention of making the mortgage payments, but through no fault of their own, they may be unable to make payment and the responsibility can fall squarely on your shoulders. For example, the borrower could get sick or laid off from work and no longer be able to pay the mortgage.

When the borrower doesn’t meet the repayment terms of the mortgage, that’s when things can turn ugly for the mortgage co-signer. If the borrower misses or is late on payments, it’s as if you (the mortgage co-signer) were delinquent on the payments and they will affect your credit. Furthermore, as the mortgage co-signer, you can find yourself liable in legal actions. If you own a home, it could be at risk and seized in a lawsuit.

Something else you might not consider as a mortgage co-signer; the debts you’re co-signing on are shown as if they are your own. This increases your debt load if you were to apply for, say, a second mortgage on a rental property, which could lead to your mortgage application being turned down.

What can you do to protect yourself as a mortgage co-signer?

Home-buying is a major financial decision. That being said, there are ways to protect yourself as a co-signer. It’s important to know the co-signer well and trust them. Be aware of how being a co-signer can affect your relationship. If things go sour, it could ruin a close bond between family members or friends.

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