With homes becoming so expensive and more inaccessible for young people hoping to own property, many individuals are turning to their trusted love ones for help in the form of a mortgage loan co-signer.
So, what is a co-signer? Fidelity Investments writes, "a co-signer is someone who can help a candidate qualify for a loan or mortgage when they aren't eligible on their own. Having a co-signer reduces the lender's risk as there is now more than one person responsible for ensuring repayment of the loan. With a co-signer, the loan has a backup, someone who will pay if the primary borrower doesn't. Lenders like co-signers and are more likely to lend with them. Parents may choose to act as co-signer for their children to help them qualify for a mortgage. Or, you may decide to co-sign for a friend or family member who has a poor credit score. Co-signers and primary borrowers are equally responsible for paying back the loan."
While co-signing on a mortgage loan can be a great gift of love and help make the person's dream come true, it is important to really carefully consider the implications. Here are some things to be aware of:
- The loan goes on your credit score. If the person you're helping misses a payment, your credit score will be impacted.
- You will be obligated to pay the loan if the other person defaults, awarding you all the risk without any actual property ownership.
- If in the future, near or far, you need to take out a loan, the loan you co-signed on will be considered against you. It will still be viewed as money loaned and outstanding, decreasing your ability to secure more.
- This is a long-term commitment; 30 years at least, in most cases. While your relationship with the co-signer may be close now, will it always be? Once you're on the loan, it will be very difficult to be taken off.
Consider these things carefully, and reach out to experts for advise!
You can read Fidelity Investments full article by clicking here!