What You Need to Know About If You Co-Sign
June 14, 2019 | Posted by: Sherry Corbitt
There are times, when a borrower either doesn’t have sufficient credit history or cannot afford to get a mortgage because of their debt-to-income ratio. Sometimes, it’s not because of defaulted payments or unable to make payments. Sometimes, it’s because a recent graduate hasn’t had the time to build credit. In these cases, one option is to get someone added as a co-signer. But what does that mean? What are the implications of co-signing another person’s mortgage?
Let’s say that your family member or friend asks you to co-sign. It’s great to want to help them out, but co-signing is something you shouldn’t take lightly. It is a decision that could have significant impact on your future.
When you co-sign, you’re promising to pay off the loan in the event that your family member or friend is unable to make the payments. Regardless of who the principal borrower is or co-borrower, if you are a co-signer, you are 100% responsible for the debt or the mortgage. You have all of the same legal obligations as everyone else and this means that if payments aren’t being made, that the lender could take legal action against you. They could do more than put a judgement against you in court or garnish your wage. They could go after your property or assets to cover their loss. Even if the applicant declares bankruptcy, you will still be on title and responsible to pay.
These late/missed payments would also affect your credit score. It doesn’t matter that it’s not your mortgage. The debt will affect your debt service ratio, impacting the amount you can borrow in the future when you have to renew your own mortgage.
And if you decide later on to remove yourself from the mortgage, the person you co-signed for will have to make a new application and re-qualify on their own.
So what can you do? Ask the lender to notify you if the applicant defaults on any payment. That way, if the payment is late, even one day, you can deal with it before it escalates into a situation that affects you.
Whether you co-sign or not, make sure that you can handle the extra debt if you ever need to make the payments. Just in case, if you do co-sign, make sure that you have a copy of all the paperwork. You never know when you might need to look up something on the contract.