What Are Your Responsibilities As A Cosigner?

Are you considering being a co-signer for someone’s home loan?

Co-signers are required in many cases and for many people. If a person has poor or no credit, an unsteady job, a high debt-to-income (DTI) ratio, or other credit issues, it can be nearly impossible to be approved for a home loan. In these cases, a person can have a mortgage co-signer who “agrees to back up your loan, guaranteeing the lender that the loan will be repaid”, according to The National Association of Realtors®. A co-signer essentially enhances your credibility as a borrower, making it much more likely that you will be approved for the loan, but picking the right co-signer is vital.

Here’s what you need to know about the responsibilities of a co-signer:

If the main owner of the loan fails to make payments, the co-signer is financially responsible for the loan and their credit score could suffer.

Co-signers should be:

  • A trustworthy person

  • Have good credit/someone who will be approved by lenders

  • Willing to be part of a long lasting agreement

  • Have a good income

  • Be 18 years or older

  • Be willing to have their income, credit history, credit score, assets, and debts scrutinized by the potential lender

Agreeing to be a co-signer for a home loan is a very serious agreement, so it is best to draw up a formal contract that both parties will have to sign. “A real estate lawyer can help you and your co-signer draw up an agreement that specifies who will pay the bills, who will occupy the residence, and contingencies, like what happens if the main mortgage holder cannot make the payments”, according to the National Association of Realtors®. This contract can help protect both the main owner of the loan and the co-signer against any fall-outs or worst-case scenarios.

Who would make a good co-signer?

  • A lot of people ask friends or family members to co-sign for them because these types of relationships are often built on trust.

  • Younger people, perhaps someone purchasing their first home, may ask their parents to co-sign on the mortgage.

  • With married couples, typically a spouse will be the co-signer for a home loan.

  • Siblings

  • Aunts or uncles

  • Grandparents

  • Business partners

  • Long-time friends

The National Association of Realtors® says that in an ideal agreement, “the co-signer should never have to hear from the bank after the papers are signed”. Before asking someone to be your co-signer, be sure that you are ready for the responsibility of owning a loan.

To read more on the responsibilities of a co-signer, check out this article.

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