You have a friend or family member who wants to buy a house. His financial records aren’t great, so he wants you to co-sign so he gets approved on the mortgage. Should you help?
Before you co-sign a mortgage, there are four factors you need to consider. Check out our list to make sure your co-signing experience is positive and beneficial for everyone.
- As a co-signer, you are seen as a borrower: In the eyes of a lender, co-signers and primary borrowers are one and the same. As a co-signer, you will be subject to the same scrutiny as the borrower—meaning your credit score may be affected for defaults on payment. To avoid any problems, make sure the person you co-sign for is trustworthy and financially stable. You don’t want any surprise deductions made to your credit score!
- Trust, trust, trust! Co-signing with someone means that you fully trust that person to make all of his payments on time and in full. Just one missed mortgage payment could severely lower your credit score. Don’t just go with your gut. Before you agree to co-sign someone’s loan, make sure to sit down and go over his financial history and impress upon him how important it is that he stays on top of his payments.
- Alternatives to co-signing: There are many great alternatives to co-signing a mortgage- all of which benefit both parties. First, gifting cash is a great way to lower your risk of credit score deductions while improving the borrower’s ability to get a mortgage. Of course, this is not a viable option for everyone. Another great alternative is helping your friend or family member improve his or her credit score. This will not only help the borrower’s ability to refinance or take out a new loan in the future, but will also unlock more favorable interest rates.
- Getting your name off a loan you’ve already co-signed: After the primary borrower has proven that they are financially stable by completing each payment since the loan was approved, it’s usually a good idea to take your name off the loan. The quickest way do this is through a refinance. At this point, the primary borrower has a higher credit score and a steady income, meaning they can likely refinance to a lower rate without your name on the mortgage.
All points considered, co-signing a loan is a big decision. For more information on any of these factors or to learn more about the co-signing process in general, please contact one of our mortgage specialists today.
