Lee Morof's Real Estate Blog

It can be hard to convince a lender that a young person is ready to buy a house. There may not be a long credit history, a lack of assets might make it hard to fund a down payment, and the buyer’s age can cause banks to hesitate. One of the ways for parents to help with this process is to co-sign on the mortgage. Before doing this, there are a few important steps to keep in mind.

Look At Your Own Qualifications

Remember that co-signers are going to go through the same vetting process as the primary borrower. This includes someone’s income, credit history, assets, debts, and credit score are all going to be scrutinized. It might be a while since the co-signer has had to go through this process. Be sure to take a look at one’s own qualifications. Remember that any mortgage, including acting as a co-signer, will act as an outstanding debt. This might make it hard to refinance in the future.

Think About Paying The Loan

While nobody wants to think about their child being unable to pay back the loan, there is always the chance that this may happen. Therefore, think about what would happen if you need to step in and make these payments. If you cannot handle the burden of having that additional co-payment, you may want to think twice about co-signing. Failing to make these payments will not only hurt your child’s credit score but yours as well.

Protect Yourself

As a co-signer, it will be important to protect yourself before signing on the dotted line. First, be sure to do some estate planning with your child. You should encourage your child to take out a life insurance policy. While no parent wants to think about burying their child, if something happens to him or her, the co-signers are going to be on the hook for the rest of the loan. Furthermore, be sure to monitor the loan payments as well. Sign up for email or text alerts to make sure payments are being made on time.

Plan Ahead

Many parents are going to reflexively act as a co-signer for their child; however, it is important to plan ahead. Be sure to think about all possibilities and make sure that both you and your child are ready to handle an added loan payment.  

If you are interested in buying a new home or listing your current property, be sure to consult with your trusted real estate professional.

A mortgage is a significant responsibility. For this reason, many people have someone co-sign with them on their mortgage. Before agreeing to co-sign on any mortgage, it is important to ask the right questions. There are several crucial questions that everyone should ask before they co-sign on someone else’s mortgage.

What Does It Mean To Co-Sign On A Mortgage?

Before signing that piece of paper, it is important to understand the responsibilities involved. Co-signing on a mortgage is a little bit different than co-signing for a credit card.

The person who is buying the home, the primary signer, lives in the property in question. The co-signer, typically, does not. On the other hand, both people signing the mortgage take on the financial risk of the mortgage. Before co-signing, understand the financial risk involved.

Is It Smart To Trust The Borrower?

One of the most important questions to ask is whether or not the borrower can be trusted. Remember, if the primary signer cannot make the payments on the mortgage, the co-signer is on the hook for those payments. Before placing any financial assets on the line, make sure the borrower can be trusted to maintain gainful employment, make smart financial decisions, and keep up with the mortgage payments.

What Are The Risks Involved?

There are a few risks that people need to think about when it comes to co-signing a mortgage. First, think about the risk to the credit score. If the primary signer makes late payments, these can impact the co-signer’s financial health and credit score as well.

In addition, there are relationship risks that everyone should think about. Most people co-sign a mortgage for a family member or friend. Having this type of financial arrangement can complicate relationships among loved ones.

Understanding The Process Of Co-Signing A Mortgage

These are only a few of the many questions that people need to ask when they are thinking about co-signing on a mortgage. Everyone who is considering co-signing must consider the financial health and responsibility of the primary signer in addition to the risks they will be taking on. Co-signing on someone else’s mortgage is a big decision. Consider the various factors involved in this decision.

As always, speak with your trusted real estate and mortgage finance professional for advice on your personal situation.