Written by:
Jeff Caldwell – Branch Manager Overland Park – (913) 498-3333
At Homestead Financial Mortgage, we look at every possible way to help our borrowers achieve their “dream home.” But sometimes, the numbers for borrows alone just don’t work. There are various reasons for this, like income, credit, or employment issues. Having a co-signer can be a great option as long you understand all the pros and cons.
When you apply for a mortgage, many factors go into getting approved. Things like your credit score, debt-to-income ratio, down payment amount, work history, and the value and condition of the home you want to purchase are all considered when determining your eligibility.
A co-signer is an individual who commits to assuming the financial obligation of the main borrower’s loan in case the primary borrower is unable to make payments. Co-signers may include family members, friends, spouses, or parents. Being a co-signer on the loan means they will be on the deed to the property as well.
Having a co-signer on a mortgage application can offer several advantages for individuals who may face challenges in obtaining a loan independently. One of the primary benefits is improved eligibility. A co-signer with a stronger financial profile can enhance the overall application if the primary borrower has a limited credit history, a low credit score, or insufficient income. This increased creditworthiness may result in a higher chance of approval and more favorable loan terms, such as a lower interest rate.
Furthermore, a co-signer can be particularly beneficial for first-time homebuyers. While some borrowers might be eligible to buy a home soon after graduating and securing their first job, there are individuals who may not have an established credit history, student loans, or a substantial down payment, making it difficult to secure a mortgage. With a co-signer, lenders may be more willing to extend credit, enabling the first-time buyer to enter the housing market.
Overall, the presence of a co-signer on a mortgage application can provide a valuable financial boost, increasing the likelihood of approval and potentially leading to more favorable loan terms for the primary borrower. However, it’s crucial for both parties to understand the responsibilities involved, as the co-signer is equally liable for the repayment of the loan.
As a co-signer, you are also responsible for the loan as the borrower living in the house. Many people have a misconception that if they co-sign, they are not obligated to pay if the borrower does not make their mortgage payments. That is not the case. The co-signer is accountable for the payback of this loan. Additionally, if the borrower has late payments, their payment history will also show on the co-signer’s credit bureau, possibly jeopardizing their good credit score. Their credit score could drop up to a hundred points due to a late payment and keep them from being able to accomplish their financial goals in the future. This could affect buying a home, refinancing, or gaining access to additional credit because the debt shows they owe for the co-signed mortgage on their credit.
So, while you might be the hero in the borrower’s eyes and saving the day, you need to weigh the risks of co-signing and make sure it is the right decision for your situation. If things go wrong, it could also cost you a valued relationship. Setting solid ground rules upfront is essential to staying in the loop regarding payment history. This could mean possibly adding your phone number, email, or address to the borrower’s loan account in case the account goes delinquent. You should also make sure you have online access to the account so you can ensure the payments are being made in a timely manner.
At Homestead Financial Mortgage, our loan advisors are trained to offer all the options and determine which is best suited to help our borrowers obtain their dream home. Many times, preparation is the key to achieving homeownership. We have resources to help borrowers prepare for a mortgage pre-approval. Sometimes, there are tips and tricks that may help you secure a home loan without needing a co-signer.