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Is Using a Co-Signer Right for You?

By Arvin Sahakian · Apr 13, 2015 · Mortgage

Is Using a Co-Signer Right for You?

Image courtesy of Flicker, Jacob Botter

A co-signer can help you qualify for a mortgage more easily without having to give up any legal claim to the ownership in your home.

As a home buyer, you have many decisions to make when purchasing a home, especially when it comes to obtaining a purchase loan. This is where many home buyers face one of their biggest challenges, because qualifying for a mortgage means that you have to meet certain income and credit qualifications first.

For many people, qualifying for the home of their dreams is only possible with the help of an additional signer on the loan. However, many borrowers do not know what a co-signer really is. We will discuss what it means to have a co-signer in order to obtain a mortgage loan, as well as the disadvantages and advantages that come with having a co-signer.

The Definition of a Co-Signer

Co-Signing is the act of signing for another person's debt. The co-signer becomes legally obligated to make payments on your behalf should you default on your mortgage obligations. Put simply, a co-signer takes on the responsibility to make sure the mortgage is paid. However, unlike a co-borrower, the co-signer has no legal claim to the property.

Disadvantages of a Co-Signer

From the borrower's perspective, it would seem that having a co-signer is a great move. While it can be a great move (and we will describe the advantages below), there are disadvantages as well.

One of the biggest disadvantages is that you are putting a friend or loved one that co-signed for you at financial risk. If you ever find yourself in a bad financial situation, you cannot just make the decision to file bankruptcy and move on, you will also have to think about someone else in the process. By using a co-signer, you are putting personal and family relationships at risk for a financial transaction, which may not be worth the overall risk in the long term.

It is important to be absolutely sure that you can afford to repay the mortgage loan once you have a co-signer agree to take on the financial obligation with you.

Advantages of a Co-Signer

For many potential homebuyers, purchasing a home without the help of a co-signer is not a possibility. If a trusted family member, friend or loved one is willing to sign with you, the advantages can be numerous, such as:

1. Qualifying for a loan that you would otherwise be unable to on your own.

2. Begin taking advantage of equity growth from home ownership.

3. Building and improving your credit score and credit history.

4. By making consistent and timely payments, you can refinance without the co-signer within a few years.

Careful Consideration

Purchasing a home with a mortgage is something that you should always give careful consideration to. If you can obtain a mortgage loan, without a co-signer, this would be ideal. However, if a co-signer will make the qualification process easier for you, and you have someone who is willing, make certain you are absolutely confident in your ability to make the payments. After all, any financial mistakes you make could potentially affect not only you, but someone else very close to you too as well.

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