If you don’t meet the financial criteria of mortgage lenders the likelihood that you’ll be approved for a mortgage is slim. Hence, if you’d want to qualify for a mortgage you may need to get a co-signer to enhance your application. A co-signer isn’t a co-borrower and has limited say in the property or mortgage repayments. So why would you need one and should you become one?
What Is A Mortgage Co-Signer?
A mortgage co-signer is a person who’ll neither own or occupy the home being purchased. However, they do offer surety on the financial obligation of a borrower and will be liable to pay if the borrower defaults. A co-signer has to be a family member or friend and cannot be someone who’ll benefit from a mortgage being approved like a real estate agent or broker.
When a co-signer is added to the mortgage application their debt-to-income ratio will be considered as well as their credit score and credit history. Ideally it would be someone who’d make the application stronger with good numbers in all three categories. If this is the case a mortgage lender is more likely to approve the loan, and for an amount the borrower will be pleased with.
The Limitations Placed On Co-Signers
Co-signers can add income, but they won’t always mitigate credit problems. Lenders will look at the least qualified credit score (which is likely the borrowers) and then decide whether they can approve the loan. The best option is to to talk to a mortgage broker and inquire about your specific financial situation.
The Risks Of Co-Signing A Mortgage
Co-signers should remember that they have no claim to the property whatsoever. They only give a lender security if the borrower defaults. Essentially they’ll have all the financial responsibilities of homeownership with none of the benefits. And any financial obligations a borrower doesn’t follow through with will show up on a co-signer’s credit report. This could make it harder for a co-signer to get financing if they’d need it.
A borrower should also understand the risks requesting a co-signer carries and what unnecessary pressure this may put on their relationship. A borrower is not only responsible for maintaining their credit profile, but for maintaining the credit of their co-signer. If anything were to go awry they risk losing or straining the relationship with their co-signer.
Co-signing a mortgage is a personal decision, one that should be made once you’ve considered all the variables. Having said thgat, when you do decide to apply for a mortgage always speak to a trusted mortgage loan professional who’ll offer you guidance and advice based on your specific situation.