Most people do not know what it means to co-sign a mortgage. Some people think it’s a curse, and some think it’s no big deal. The truth is somewhere in between.
The good news is that co-signing a loan does not hurt your credit score, as long as the person you are co-signing for does not make any late payments. Most co-signing situations are a parent or parents who are co-signing for a child. In fact, the mortgage guidelines for Conventional loans say a co-signer has to be an immediate family member. Only on FHA loans is a co-signer allowed to come from outside the family, but even that is not automatically allowed and will be under scrutiny.
Other good news is that the co-signers will not have the mortgage they co-sign for count against their credit and debt ratios in a future application, as long as the child they co-signed for can produce canceled checks for one year showing the payments have been made on time by the child.
Further good news is that if the mortgage payments are made on time it will contribute to a good credit score for all parties, both the co-signers as well as the child.
The bad news is that if the person making the mortgage payments pays late it will affect everyone’s credit score negatively.
I had a home buyer ask if his parents co-signed his loan, if they had to co-sign the whole thing or if they could just co-sign a small part of it. There is no such thing as co-signing a small part of a loan, you are responsible for the whole loan as a co-signer.
Also, somewhere down the line, it may be possible for the occupants of the house who needed a co-signers help, to refinance their mortgage and get the new mortgage on their own at that point. Then the co-signers would have helped their son or daughter get a mortgage, and finally be relieved of their obligations. But do not be fooled, co-signing is an obligation. If you co-sign for someone you are liable, and are liable for the whole mortgage. If your son or daughter cannot make the mortgage payments you will be called on to help make the payments. Co-signing is not simply signing your name on a bunch of papers. You are guaranteeing the loan and will be financially responsible for all payments. But when carefully thought out and discussed co-signing a loan is a safe way to help a family member.
Schedule a call with me to talk about what makes sense for your situation.