Co-Signing On The Dotted Line
I remember when I was younger and needed a co-signer and I remember later on and being asked to BE a co-signer. I didn’t think much about needing one, but boy I sure did think twice about BEING one. You really put yourself, and your credit, on the line when you cosign for someone. Especially if it’s a friend or family member. Co-signer BEWARE!
Here is some information about this subject, courtesy of C.A.R., and the NY Times.
Co-signing On The Dotted Line…
Tighter lender standards and an unstable job market have made it tougher for some people, especially those just starting out, to qualify for a home mortgage on their own. So, some home buyers are turning to family members or close friends with good credit to co-sign a home loan.
Making sense of the story
- While becoming a co-signer may seem like a good solution, money manager and lenders caution against those who are asked to be the cosigner.
- A co-signer, even if not living in the house, is really a co-borrower, meaning he or she still is responsible for payments if the occupant is unable to meet his or her obligations. In other words, if the principal party defaults on the loan, the co-signer is on the hook.
- One financial planner suggests potential co-signers take a less risky alternative, such as providing a cash gift for the down payment. Under current tax laws, a person can give as much as $13,000 to a person, free of gift taxes, or $26,000 per person, if a married couple filing jointly is giving the money.
- Those considering co-signing a mortgage must conduct due diligence. First, the co-signer must understand why the family member or friend is asking for help. Potential co-signers shouldn’t be afraid to look into the requestor’s personal finances to help determine whether he or she will be able to repay the loan. Perusing credit reports also will show the track record he or she has for paying off debts.
- A discussion about worst-case scenarios also should take place before signing on the dotted line. Working out a written contract containing an agreement about what would happen in the event of a default, also is recommended.
- Co-signers also should keep in mind that the mortgage will show up on their credit report, and could affect their own ability to borrow money or buy a second home. If the principal borrower makes a late payment, that also will show up on the co-signer’s report.
I’d love to hear if you’ve ever needed or been a co-signer and if you survived it, or regret it and have a horror story.
Randy
I’ve needed a co-signer many times, mainly due to lack of credit … instead of poor credit.
These days the credit markets are tough .. and very few people have the equity to borrow against. The other problem I see is that you have lenders with money and credit worthy buyers … but very few loans are being booked.
There are many in a position in life with a steady wage – but they can’t take advantage of all-time low interest rates & low home prices. The lenders won’t risk it.
Thank you for your input 209! I too have had the need in the past for a co-signer while starting out my life of auto and home ownership, and it was from parents.
It went well because I am the kind of person that makes good on promises and commitments, but I saw my siblings take advantage of mom multiple times and being co-signer left her responsible and in major debt.
It’s a tough call to ask someone for help, and even tougher to be asked and have to decide whether to help or not.
Loan restrictions are certainly more prevalent now, but I’m still seeing my clients getting approved by the lenders I refer them to. The difference now is that they have to actually prove they can repay the loan.
Times are tough, but I think people are tougher.