If you, your spouse or you partner have bad credit your application will most likely be rejected. Why not get a co-signer?
At some point in your life you would’ve taken out a loan, your spouse is likely to have done the same. Whether that was to pay for school or to purchase a car. Or perhaps you were living far more recklessly before you were married, which would’ve affected your finances and your credit score. Whatever your reasons are for having bad credit, it really shouldn’t be a stumbling block to owning a home. Which is why you should consider getting a co-signer for your mortgage application.
What Is A Co-Signer?
A co-signer is a non-occupant borrower. What this means is that they share the financial risk of owning the property, without sharing in the ownership. They’re really just there to improve your chances of getting the loan. After all, if you default or miss payments they’re required to pay.
Who Can Be A Co-Signer?
Any mortgage lender that allows co-signers will require that whomever is co-signing the loan is either a relative or spouse. You cant have someone co-sign the mortgage if they’ll be benefiting from the sale. So, if for example your sister is also your realtor she cant co-sign as she’ll be receiving commission from the sale.
Why Would You Need A Co-Signer?
Simply, you’ll need a co-signer to improve your chances of getting a mortgage.
As a co-signer will:
- Increase your likelihood of approval. As their credit rating and debt to income ratio is also considered in the application.
- Mitigate the risk a lender is taking on. As they’ll become responsible for payments should you default.
- Improve your bad credit history. While a co-signer won’t directly improve your credit history their credit history is considered in the application which is likely to help you reach the minimum requirements a mortgage lender needs.
Should You Get A Co-Signer?
While co-signers do improve your chances of getting a mortgage, they also take on considerable risk. Risk that could sour the relationship if things go awry. Think about this before you dive into getting a co-signer: which is more valuable? A property or your relationship with the co-signer. You may think things will never go wrong and you’ll always be able to make your payments. But if for some reason you can’t you’ll likely to ruin the relationship. Instantly.
Before you approach someone close to act as a co-signer think of the risk involved. But before you do, you may be able to clean up your credit history and apply for a mortgage through a less stringent lender.
Contact your local real estate agent to discuss your options.