Will a Co-signer Help?
 November 26 2012     Posted by Mary Poburan

Very often a client requires a co-signer in order to qualify for a mortgage. There are several reasons that you may be asked to provide a co-signer. It is important to know why a co-signer is being requested and to ensure that the potential co-signer is aware of how this will impact their own finances. The following are some reasons a co-signer might be needed.

1)       Is credit relatively new? Have there been some derogatory payments? If so a co-signer may be needed to add strength to a weaker credit scenario. In this case they need to have extremely solid credit so as to counteract the effect of the main applicants credit history.

2)      Is employment history relatively new? If a client qualifies for a mortgage but they have just started a job or have left school to begin a career, a lender may require a co-signer so as to strengthen the application. If the applicant cannot sustain employment they want to know that the co-signer will be responsible to make the payments.

3)      Is Debt load too high? Often this is a cautious reason to explore a co-signer. At the end of the day, co-signers do not usually cover any payment shortfalls ,however in some cases, clients have income that cannot be used towards qualifying so payment appear to be too high. As long as details are provided to indicate that applicant is still going to be responsible to make the payments, lenders are more likely to allow a co-signer in this instance.

4)      Is there a negative net worth? When qualifying for a mortgage it is important to show some positive net worth. In many cases this is not possible due to student loans and other consumer debt. In this situation if an applicant has little to fall back on, the lenders will usually ask for a co-signer in the event that a life event occurs and the mortgage can no longer be paid.

Asking someone to co-sign is a serious undertaking. It is a responsibility not to be taken lightly and full disclosure should be made to the potential co-signers as to the following key points:

1)      As a co-signer you are 100% responsible for the payments due on a mortgage. If payments are not being made by the main applicant, you will be asked to make the payment.

2)      The credit history on a particular mortgage that is co-signed, will affect the co-signer. Late payments will reflect negatively on a co-signers credit history.

3)      The amount of the mortgage debt as well as monthly payments requirements are factored into a co-signers personal debt load. This could affect the co-signer if they are applying for their own loan or mortgage.

4)      A co-signers entire financial picture will play a part in their suitability of acting as a co-signer.They will be required to provide full finacial details and disclosure in rder to apply in this capacity including verifying income and other finacila details. All of the co-signers assets and liabilities as well as their credit history are considered. If a cosigner is at the threshold with their personal finances, they will be of no use as a co-signer. 

Being a co-signer is an important responsibility with financial obligations that need to be clearly understood. A co-signer will not be able to be removed until the main applicant is able to fully qualify on their own. There is no concrete timeline to this process so a co-signer should be aware of this and not expect it to be a short term obligation. Asking for a cosigner should involve an open dialogue so that all parties are aware of what is expected.