What Does Co-Signing A Mortgage Mean?

April 27th, 2010

shaking hands in front of a house

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

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

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.

Can we change co-signing status later?

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.

What does it really mean to co-sign?

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.

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Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

6 Responses to “What Does Co-Signing A Mortgage Mean?”

  1. jhon black says:

    I co signed for a mortgage for my mother to get a house some 20 years ago. To date, she is now upside-down on her mortgage and wants to modify. She has asked me to sign a quit claim in order to expedite this process. I am concerned that my home will be in jepordy if I do this. I have never lived or paid mortgage on my mother’s property

  2. brianm says:

    I am not sure about the legalities of this. I would speak to a real estate lawyer about this, I do not know enough about it to guide you.

  3. jennN says:

    My husband and I are trying to find a way to solve a short-term problem.

    If we ask his mother to co-sign a mortgage with us (for which we would qualify for no problem) and then a few months later we want to remove her from all financial obligations would we simply execute a quite claim deed on the property or would we have to actually refinance the property?


  4. brianm says:

    I am afraid when you have someone on a mortgage with you, the only way to remove them from the financial obligation is to refinance them off. So you’d have to go through another transaction, and the closing costs associated with that transaction. Let me know if you have any other questions.

  5. Brie says:

    If my parents co-sign for us on a loan, who gets to claim the property tax and interest when taxes are filed? My parents will not make one payment only so-signing.

  6. brianm says:

    You would get to take the tax deduction, do not worry about that. If you are writing the checks, you get to take the deduction.

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