If you would like to buy a house, but you can’t qualify for a mortgage because of your debt-to-income ratio or credit score, adding a cosigner may help you get approved. Even though having a cosigner can be helpful to you, there are serious risks to consider.
How Things Work When You Have a Cosigner
If you can’t get a mortgage on your own, a family member or another individual with whom you have a close personal relationship can cosign your application. The lender will consider both of your incomes, debt levels and credit scores.
If you don’t meet the lender’s guidelines because of your credit score and/or debt-to-income ratio, adding a cosigner who is in better financial shape can improve your application and help you get approved. If you don’t make your mortgage payments on time, the lender will be able to seek payment from the cosigner.
That person will be included on the mortgage, but not the title. That means the cosigner will share financial responsibility for making loan payments but won’t have an ownership claim to the house.
How Getting a Cosigner Can Backfire
If you have bad credit and/or a high debt-to-income ratio, getting a cosigner may help you qualify for a mortgage, but it won’t solve your problems – it will simply allow you to avoid dealing with them. If you’re currently overwhelmed with debt and struggling to make your monthly payments, and then you take on a home loan, your situation will become even more unmanageable.
Cosigning your mortgage can impact the cosigner’s financial future. Your home loan will appear on the co-signer’s credit reports, and the additional debt can make it difficult or impossible for the other person to qualify for a mortgage, car loan or credit card.
If you fall behind on your mortgage payments, your cosigner will be expected to repay the debt. That individual may then be unable to cover his or her own mortgage and other bills.
When someone cosigns a loan, that individual does so to help a family member or friend and acts in good faith. If someone you love cosigns a mortgage to help you out and trusts you to make the payments, but you don’t live up to your end of the bargain, that can severely damage your relationship.
If you have someone cosign your mortgage and things don’t work out, your relationships with other family members and friends can also suffer. People discuss their problems with others, and those people take sides.
It May Be Better to Wait
Getting a cosigner can help you buy a house right now, but it won’t address the financial situation that made you unable to qualify for a mortgage in the first place. You may be better off in the long run if you take the time to get in a more secure financial position so you can buy a house on your own.
