How Home Buyers can Pick a Perfect Mortgage Co-Signer
How Home Buyers can Pick a Perfect Mortgage Co-Signer
Not all home buyers qualify for a mortgage on their own. Sometimes a lender is willing to provide a loan to them only if they find a co-signer. This means finding the right co-signer is a must for home buyers who want to make the process go smoothly throughout the life of the loan.
Before eagerly agreeing to find a co-signer, consider all aspects of adding an additional person to the mortgage.
Rejection Versus Co-Signing
A lender may be skeptical of giving someone a mortgage. There are many reasons behind this. Sometimes a person wants a home that does not fall within a range that the bank has offered for a mortgage, other times the credit history is just not clear enough to determine the lender’s risk. Instead of rejecting the loan, they will ask a co-signer to become part of the equation.
A good co-signer can also bump up the amount a loan may be for, allowing the borrower to buy a more expensive home. The co-signer may also have a better credit history which the lender is more comfortable with.
Co-Signing Definition
A co-signer does not have to be a spouse. It can be a family member or even a really close (and supportive) friend. In this situations, the borrower would be considered the occupying buyer since they will live in the home. Meanwhile the co-signer is not likely to live in the home and is considered a non-occupant co-borrower.
Even though they do not live in the home they still own the house with the occupying buyer. The lender gains peace of mind that there are two people on the hook for the mortgage and the borrower is able to buy a home.
Finances of Both People
Even though a co-signer may not be putting any money towards the mortgage, their income and debt will be considered. A lender will look at the debt to income ratio for all parties involved. This will show exactly how much money is being made versus what has to be paid towards debts. The lower the debt to income ratio the more money a lender may offer to a borrower.
Do not choose a co-signer that does not have good financial standing. A bad co-signer can actually make it harder to get a loan. They should have a good amount of income coming in and minimal debt to pay.
Effects on the Co-Signer
This is much more than vouching for someone that they will pay their monthly payments. A co-signer is responsible for the payments of the mortgage just as much as the main borrower. If the main borrower does not pay the mortgage the co-signer will be contacted.
If neither person is able to pay the mortgage both people will have to deal with the fallout. The lender is going to foreclose on the home. This will have a major impact on their credit score. If this happens, the co-signer may be unable to buy a home themselves until this mark on their credit is gone.
People to Avoid Asking
Asking someone to co-sign is a big decision. The two people must be able to work together and trust each other for this situation to work. If one party suddenly wants out of the mortgage down the road it can be difficult to get them off the loan.
Do not ask for help from someone that may want to steal the property either. Some people will finance others in the hopes they fall behind on their mortgage. If this happens they try to make a deal with the lender to become the sole owner of the property and take over the remaining mortgage.
Even though a co-signer can help a borrower buy a home it is not always the best option. Co-signers need to be people who will be in it for the long haul. Plus, their credit history has to be as good as the borrower or even better. Otherwise, the co-signer is bringing the borrower’s debt to income ratio down.