Frequently Asked Question: Will cosigning for a loan affect my ability to get a mortgage?
Nice post by Lew Corcoran on the effects of cosigning a loan and mortgage financing.
Frequently Asked Question: Will cosigning for a loan affect my ability to get a mortgage?
Q: I've cosigned a loan for my son a year ago, but he wants to get another car, and he wants me to cosign again. The car payment will be about $350 - $380 a month; he currently pays about $320/month.
He already tried to get the car loan by himself, but he couldn't get financed by himself they said his score was about mid 600's. I don't have a problem cosigning, but I want to get a house within the next 2-3 months. I know the car will still show under my credit anyway, but does it affect me getting a mortgage because I'm going to cosign for a loan again?
A: By consigning a loan for your son, it will affect your debt-to-income ratios when you're looking for a mortgage.
Mortgage lenders evaluate two debt-to-income (DTI) ratios. The first is your front-end or housing ratio, which consists of your total monthly housing payment (mortgage principal and interest, 1/12th of your annual property taxes and homeowner's insurance premiums, and monthly mortgage insurance premiums and homeowner's association dues - if any). It will also affect your back-end or total debt ratio. The more debt you're obligated for, the lower your front-end or housing ratio will be.
The only way a loan that you cosigned for can be excluded from your debt-to-income ratios is to show that the other party has been making the payments over the previous 12 months. If you cosign for a car loan now, you will be able to show that your son had paid only 2 or 3 months of car payments. You will not be able to exclude it from your debt-to-income ratios.
Your son's inability to obtain a car loan on his own is his problem, not yours. It's indicative that he is unable to manage his debt obligations. Further, if he's late on his car payments, he will drag your credit scores down with his. Your scores will also drop simply because you took on new debt. The lower your credit score, the higher the interest rate you will pay which in turn will further affect how much house you can afford to buy.
Consider telling your son that you will think about cosigning another car loan for him, but not at this time. Explain to him that you're searching for a new home, and that you can not afford to take on new debt obligations at this time.
Lew Corcoran, Sr. Mortgage Consultant
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