If you’ve found the house of your dreams but are having trouble qualifying for a mortgage, you could ask another person, such as a family member or a close friend, to co-sign your mortgage. While this could ultimately help you buy the house you want, it would carry substantial risks for both you and the co-signer.
Reasons to Have a Co-Signer
There are several reasons why you might be unable to qualify for a mortgage on your own. You might be attempting to buy your first house and might not have a lengthy credit history. Maybe your credit score is too low to get a loan because of missed payments, high credit card balances or a history of bankruptcy. Perhaps your income doesn’t meet the lender’s requirements, or you have a high debt-to-income ratio. Having someone with a higher income and a better credit score co-sign the loan application could make the lender feel more comfortable approving it. The co-signer would not have an ownership stake in the house, and his or her name would not appear on the title.
Things for a Potential Co-Signer to Consider
Some people are willing to co-sign a mortgage because they want to help a family member or friend realize the dream of owning a home. Co-signing a loan can help someone who is starting out establish a strong credit history.
If you ask someone to co-sign a mortgage for you, he or she may have legitimate reservations. Co-signing a loan would increase the secondary borrower’s debt-to-income ratio, which could make it harder for him or her to qualify for a mortgage, credit card or loan. If you fail to make the payments on time, the co-signer could suffer. Late payments and fees would affect the secondary borrower’s credit score, as well. The lender could seize the co-signer’s property or garnish his or her wages to meet your debt obligations. That means your friend or family member could be stuck with your mortgage payments and could be unable to pay his or her own mortgage, car loan, credit card bills and other expenses.
Should You Ask Someone to Co-Sign?
Co-signing a mortgage for a family member or friend can be a tremendous act of generosity, but it’s also a leap of faith. If the co-signer trusts you to pay the mortgage on time and you don’t, that could put the co-signer in hot water. The damage to your friend’s or family member’s financial security could harm or destroy your relationship.
Before you ask someone to co-sign a mortgage, make sure you can afford the payments. If you have any doubts, you might be better off saving more money for a down payment, improving your credit score so you can qualify for a mortgage on your own, or choosing a less expensive house, rather than potentially jeopardizing your loved one’s financial future and your personal relationship.
This article is intended for informational purposes only and should not be construed as professional or legal advice.
