Should You Co-Sign that Mortgage? Slow Down and Evaluate

By
Real Estate Agent with Keller Williams Capital Properties DC AB15253
https://activerain.com/droplet/5fJ7

Many homebuyers need help from friends and family to qualify for a home loan through co-signing. Of home purchase loans in the U.S. during the second quarter of 2017, 22.8 percent included a co-signer, up from 21.3 percent in the second quarter of 2016—according to a study by Attom Data Solutions, a property database in Irvine, Calif.

Go slowly and consider what co-signing the mortgage will do to your credit.  Go slowly and consider whether co-signing that mortgage will actually benefit the buyer.  Are you enabling them to get into a home that they couldn't afford otherwise? How are they going to pay for it each month if that is the case. Do you have the capacity to make the payments for them if they fall behind? Perhaps they are better off in a smaller home if that is an option. Here’s what you need to know before co-signing a mortgage:

Payments Are Now Your Responsibility
You’re now 100 percent responsible for someone else’s obligation. While you probably won’t be making a monthly payment on the house, as a co-signer you’re now just as responsible for repaying the obligation as the homebuyer is.

Your offer to help by using your income and good credit score as qualifying factors extends to paying the mortgage if they don’t make payments.

Your Future Credit is Affected
A co-signer is, in essence, lending their future credit worthiness for someone else’s current mortgage obligation. If the person you’re co-signing for loses their job and can’t make house payments, then their credit report will be hurt, and so will yours.

The delinquency will appear on your credit report too, as does the obligation to pay the mortgage bill on time each month. This could hurt your ability to get credit in the future if you apply for a home, auto, personal, business or student loan, or want to get a good rate on a credit card.

Even if the mortgage payments are made on time and in full each month, being a co-signer on the mortgage can count against you when qualifying for future loans. That large loan is still a risk that you’re obligated to pay, and could threaten your credit score.  Think about that co-signed loan as taking up part of your debt to income ratio and restricting your ability to borrow additional money for your own purchases.  

If you have any plans to purchase a home of your own or buy a new car in the near future, you may want to skip co-signing that loan or at least talk to the lender about how this act of generosity on your part will change your borrowing capacity going forward. 

Your Debts Will Be Looked At
A co-signer’s debts will be considered in approving the home loan, with the expected outcome that debt and income from two borrowers will lower the debt-to-income ratio, or DTI, for the home loan.

For conforming loans, Fannie Mae and Freddie Mac will allow a “blended ratio” DTI that combines the incomes of the occupant and non-occupant co-borrowers. This can help when the co-signer isn’t going to live in the house and has most of the income, such as for parents helping their child buy a home.

As a co-signer, you should be prepared to provide paperwork for all of the same credit requirements that the borrower is subject to, such as bank statements and income tax returns.

close

Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. Fred Griffin, on leave of absence from ActiveRain 10/04/2018 09:03 PM
  2. Roy Kelley 12/26/2018 01:00 AM
  3. Gabe Sanders 10/20/2018 11:00 PM
Topic:
Home Buying
Tags:
home buying advice
lise howe group
advice on cosigning loans
helping children buy a home

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Ambassador
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Debe Maxwell, CRS
www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

Sage advice, Lise!

We recently gifted our son and his wife part of his downpayment. We offered to co-sign, not thinking about possible repercussions and my son's lender (one of my preferred lenders) explained exactly what you said! They didn't need us to co-sign - they just wanted to keep some of their savings for upcoming renovations and our help with the downpayment allowed them to do just that. It was, by far, the smarter way to go than co-signing!

Congrats on the feature too, Lise! Happy Saturday!

Oct 06, 2018 08:17 PM #20
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Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Absolutely everything with maximum importance in your life should be thought about slowly and the details should be ironed out a little bit more than something that’s more immediate like, say, picking a shirt to wear. But some people do make these decisions as if they were changing their clothes, in my experience.

Oct 06, 2018 10:49 PM #21
Rainmaker
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Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Debe Maxwell, CRS We always go through life with the best of intentions, most of us. But it’s always great to have a professional opinion really looking out for you. :) Congratulations to your son!

Oct 06, 2018 10:51 PM #22
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Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude

Hi Lise

I was surprised at the percentage of loans that are co-signed. It can be a big help for many but something to be carefully considered before moving forward. Great information here for borrowers, and co-signers, to consider.

Jeff

Oct 07, 2018 08:18 AM #23
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Karen Feltman
Cedar Rapids/Iowa City, IA KW Legacy Group - Cedar Rapids, IA
Relocation Specialist in Cedar Rapids, Iowa

Great post. Think before you agree to let someone else use your credit. Just like an authorized user on your credit card, you can be on the hook to pay for their home if they are unable to make the payment so in the future.  Great post

Oct 07, 2018 07:10 PM #24
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Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Excellent advice, Lise.  Anyone considering co-signing a loan should think twice or maybe even three times before committing.

Oct 08, 2018 05:25 AM #25
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Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Lise,  Good information to share with us and getg feature also.  Make it a great week.

Oct 08, 2018 07:57 AM #26
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Ginny Gorman
RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in North Kingstown RI and beyond

Glad to see this post also get the boost...so many parents need to understand what they are doing when they co-sign, especially, Lise.

Oct 09, 2018 06:12 AM #27
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Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Good morning Lise - I am glad that this is featured.  How many co signers really understand this--not enough.  

Oct 09, 2018 09:28 AM #28
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Lisa Von Domek
Lisa Von Domek Team - Dallas, TX
....Experience Isn't Expensive.... It's Priceless!

Another great post Lise Howe and congratulations on the well deserved Feature.  Too many are unaware of all of the aspects of taking this action and what could come back at them in a co-sign situation.

Oct 09, 2018 08:02 PM #29
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Nina Hollander
Coldwell Banker Residential Brokerage - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

Great information, Lise. I was trying to think about when someone co-signed for one of my buyer's purchases and realized it was never. I've had a few situations where there was gift money, but no co-signers.

Oct 10, 2018 01:20 AM #30
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Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Lise, my parents gave me the down payment  on my first home and did not co-sign, but told me any time I run into trouble let them know because they would be prepared to bail me out...that was a better insurance policy than if they co signed for me, Endre

Oct 12, 2018 10:58 PM #31
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Chris B Johnson REALTOR®
Allison James Elite - Moorpark, CA
5 Star Rated REALTOR® Quality, Not Quantity

Good Advice Lise Howe :)

Oct 13, 2018 03:08 PM #32
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Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker and Attorney Licensed in DC, MD, VA,

Thanks Chris B Johnson - I love your video of Phil Dunphy from Modern Family!

Oct 14, 2018 09:15 PM #33
Rainmaker
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Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker and Attorney Licensed in DC, MD, VA,

Endre Barath, Jr. - I am very lucky - my son just bought a condo in NYC and didn't need any help from me - and he even arranged for me to get a referral! 

Oct 14, 2018 09:17 PM #34
Rainmaker
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Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker and Attorney Licensed in DC, MD, VA,

Nina Hollander - welcome back from Russia - 

Oct 14, 2018 09:18 PM #35
Rainmaker
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Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker and Attorney Licensed in DC, MD, VA,

Lisa Von Domek 

Oct 14, 2018 09:20 PM #36
Rainmaker
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Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Lise, now that is a good son to have, can pay for his own Condo without help from you and give you a referral to boot, I wish I was a good son like that, oh well, Endre

Oct 14, 2018 09:42 PM #37
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Nina Hollander
Coldwell Banker Residential Brokerage - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

Thanks, Lise. Got home 14 hours later than scheduled... my flight from Munich to Charlotte was cancelled last minute and I ended up having to fly 10 hours from Munich to San Francisco, wait three hours and then take a red=eye back to Charlotte overnight. Finally walked through my door after 7am on Sunday.

Oct 15, 2018 05:18 AM #38
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Georgie Hunter R(S) 58089
Hawai'i Life Real Estate Brokers - Haiku, HI
Maui Real Estate sales and lifestyle info

Interesting to see that this practice is on the rise.  But people will do what they need to do and it's great they can count on help from family or others.

Nov 02, 2018 08:49 PM #39
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