Are you thinking about co-signing a mortgage loan? Perhaps, you’re a parent who wants to help your adult child get their first home. Or, maybe you’re a family member or a friend of someone that you want to help in getting a home. When you co-sign on a mortgage, you’re agreeing to pay this loan if your family member or friend doesn’t. So before you sign on the dotted line, you should consider the pros and cons of taking on this responsibility and what it could potentially mean to you.

There are several reasons why a homebuyer may need to have a co-signer on their mortgage:

• They’re a first-time homebuyer with little or no credit history.
• They have a low credit score.
• They don’t make enough income to qualify for the home they want.
• They have a high debt-to-income ratio due to credit card balances or other outstanding loans.
• They can’t afford the down payment and/or monthly payments of the new home.

The purpose for being a co-signer is to help the homebuyer qualify for the new mortgage loan. As a co-signer, you’ll need to have enough income and little debt to meet this new loan responsibility, since the lender will examine both your and the buyer’s applications, credit history, employment, income, debt-to-income ratio and other financial factors.

Because you’ll be responsible for the loan if your family member or friend cannot repay it, you need to make sure you can trust them to make the mortgage payments. It may sound harsh to have to evaluate someone’s trustworthiness, but if you don’t think they’ll be responsible enough to repay the loan, then you shouldn’t co-sign for them.

Some pros of co-signing on a mortgage are:

• You’ll have the satisfaction of helping your family member or friend buy a home.
• You’re helping your family member or friend establish their credit.
• After a couple years, your family member or friend can re-qualify for a mortgage on their own, so you can be taken off the loan.

Some cons for the co-signer are:

• You have no ownership interest in the property and don’t hold the title.
• Your debt-to-income ratio will increase affecting your ability to get a future loan.
• The lender will come to you for payment if your family member or friend misses mortgage payments.
• Any late payments they make can affect your credit score.
• A lender could garnish your wages or seize your collateral for payment.
• You could be responsible late fees or other fees associated with payment collections.
• Your relationship with your family member or friend can be negatively impacted, if they can’t make the mortgage payments.

Co-signing on a loan is a big commitment, so make sure you weigh the pros and cons before you sign. You may even want to consider talking with your attorney for legal advice. Your lawyer can create a contract that details each person’s responsibility regarding the loan – although this contact won’t take away your obligation if the other person defaults on the loan.

If you, your family member or friend needs a mortgage loan, contact the mortgage specialists at Grandview Lending. They can help you, your family member or friend find the right mortgage loan based on your or their situation.

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