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Cosigning a Mortgage: Good Idea, or Bad? Read On To Find Out Whether Or Not You Should Help Your Loved One Get a Mortgage Loan

Cosigning a Mortgage: Good Idea, or Bad? Read On To Find Out Whether Or Not You Should Help Your Loved One Get a Mortgage Loan published on 2 Comments on Cosigning a Mortgage: Good Idea, or Bad? Read On To Find Out Whether Or Not You Should Help Your Loved One Get a Mortgage Loan

Father helping son with homework

Co-signing on someone’s mortgage is not a joking matter. You should fully document and explain all details of the contract with them. Talk about what you will do in case the person who needs the loan can’t pay you back. Let them know ahead of time what them not paying will do to your relationship. If it means that you will never speak to the person again, let them know that you are serious. One of the worst parts of co-signing is that usually it is a family member that signs. Therefore, when the person doesn’t pay, it puts a major strain on a family, and can even result in an estrangement. See: Top 10 Reasons Not to Co-Sign on a Loan.

Realize that if they default on the mortgage, you’re going to be responsible. Yes, the responsibility is technically theirs, but if they don’t pay, you have to or else it affects your credit. Them not paying doesn’t affect them in any way in terms of their credit score. It affects yours.

The party that you are signing for is going to have to pay the mortgage off by refinancing it, or by selling the property. This is so that the note can be paid off. One option when it comes to cosigning, is that you can suggest living with the person. If you do not, you are what is called a “non occupant co-borrower.”

When you cosign for a loan, realize that your borrowing ability regarding credit is definitely going to be limited. This is because your debt to income ratio is going to be greater. It will be more difficult to borrow any new credit. This includes getting an auto loan, or opening new credit cards. You will have a tougher time qualifying for any new credit lines. This means that if you are needing to purchase a new car in the near future, you’ll probably want to reconsider cosigning someones mortgage. Or, buy the car and then tell the person that you are going to need to wait a little longer before helping them out on their mortgage loan. You must put yourself first.

Most people who cosign for another persons mortgage usually regret it, even if the other person didn’t default on the loan. Just the stress each month of wondering if the person is going to pay takes an emotional toll. For further reading, see: The Risks of Co-Signing a Loan With Your Child.

2 Comments

This is a very personal decision that only you can make. Co-signing will add your income (and debts) to hers so that the probability of you two together being approved increases. Of course, then if she defaults it is your responsibility to pay the entire thing and it will affect your credit. Be sure to think seriously, and ask your loved ones for their advice; as well as have a long, honest talk with your daughter about the terms and repercussions regarding your relationship.

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