Co-Signed Debt May Impact Your Ability To Purchase A Home

It is not uncommon for parents to co-sign for their children for such things as:

• Car loans
• Cell phones
• Student Loans

To just name a few.  But parents need to realize when they do this it may not only impact their Credit Scores, but their Debt-To-Income (DTI) Ratios as well.  Co-Signing for someone else is a big risk, and the Co-Signed Debt May Impact Your Ability To Purchase A Home. 

As I just stated Co-Signing for someone else is a big risk.  If the person you co-sign for does not make a payment on time your credit scores are effected.  Credited scores might also be impacted because of the additional debt, and prevent you from obtaining additional credit later on.

Also recent Loan Program guideline changes have tightened the guidelines and made co-signing even more risky.  For example prior to recent changes,  if a you co-signed for someone, and you could prove the person you co-signed for had made the last 12 consecutive monthly payments on the debt, the monthly payments were excluded from your Debt-To-Income (DTI) Ratios.  However, with recent guideline changes these payments might no longer be excluded from your DTI Ratios.

Both Fannie Mae and FHA allow a co-signed debt to be excludes from the Debt-To-Income (DTI) Ratios if it can be documented that the primary obligator on the debt has been making the payments ON TIME for the previous 12 consecutive months.  However, the recent guideline changes have added restrictions to utilizing this provision.  Most co-signed debts are joint debts, meaning both parties have equal liability for the debt  Therefore,  debtors are equally obligated for the debt.  So unless a copy of the Note can be produced showing one of the parties to the debt as the primary obligator, and further showing the other party does not have collateral ownership to the debt, then the debt cannot be eliminated from the co-signers DTI. 

What all this simply means is that it is VERY unlikely a co-signed debt will be eliminated from the co-signers DTI.  If the co-signed debt cannot be eliminated from the DTI the Co-Signed Debt May Impact Your Ability To Purchase A Home in the future.  Co-signing for someone else should only be done after a lot of consideration of the risk, and impact it may have on future plans, especially if those future plans involve the purchase of a home.

 

 

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam,# Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com