Benefits of a Co-Signer on Your Mortgage
If you’re looking to purchase a home or refinance on your current home, you might have concerns about qualifying due to employment, income, debt, credit, or other factors. Depending on your situation, having a co-signer on your mortgage could help you meet certain qualification standards.
How could a co-signer help you qualify?
A co-signer acts as a guarantor on the loan and does not make monthly payments but promises to assume the responsibility of the loan if the occupant does not make the monthly payment. In some instances, having a co-signer on your mortgage can make the qualification process easier.
A co-signer differs from a co-borrower in that the co-signer does not appear on the property’s title, whereas a co-borrower does, even if they do not occupy the property.
Here are a few reasons why having a co-signer could help you qualify:
Help meet credit requirements. If you have less than stellar credit, a co-signer with good credit can help the bank feel more confident that the mortgage will be paid back, raising your chances of qualification.
Help meet income requirements. A lender carefully measures your income and debts when evaluating how much you can borrow. If you have a lower income or significant debt, a co-signer can help you qualify for a larger loan. Just a reminder, you should always feel confident that you can comfortably cover your monthly payments, even if you have a co-signer on the loan.
Smooth out employment gaps. If you have not been employed steadily for the past two years, are self-employed, or recently switched jobs, a lender might be wary of your income stream. A co-signer with a strong employment history will give the lender peace of mind that income will remain steady enough to pay back the loan.
Why should you agree to co-sign on someone's loan?
Often family members will co-sign on a loan for family members who they believe can make the monthly payments but need help qualifying. Whether they have student-loan debts, have just started their career, or are self-employed, co-signing on a loan can help the primary borrower the opportunity to build equity and create a positive credit history.
Potential co-signing drawbacks:
It is important to remember that the co-signer and the occupant will be equally responsible for the repayment of the loan in the eyes of the law. Suppose the primary borrower cannot make the monthly payment. In that case, the non-occupant co-signer will be responsible for paying the total amount or risk a credit hit, late payment fees, or other possible consequences.
If you decide to co-sign on someone’s loan, there are several ways to help protect yourself from any slipups that might make you weary of co-signing, such as:
• Asking the primary borrower to attend a class on homeownership
• Asking for access to the borrower’s online mortgage statements
• Asking to receive notifications when payments are becoming due or are past due
• Having an open line of communication to discuss the possibility of a missed payment
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