Cosign Mortgage is a way to increase your loan credibility. When you co-sign a mortgage you become the co-owner of that loan. Therefore, the addition of one more party in the mortgage application will help you increase your credibility to buy the house.
Let’s dive onto the details of co-signing a mortgage.
What Does Cosign Mortgage Mean?
Co-sign means to jointly sign a document with another person to ensure its legitimacy or to assume joint liability.
What Does a Cosign Mortgage Mean?
A co-signer is a person who signs a loan agreement along with the primary borrower. Hence, the cosigner acts as the loan guarantor for the property.
A co-signer can be beneficial in situations where the primary borrower has a low credit score. If the primary borrower defaults on the payments, the cosigner will be held equally responsible for the debt repayment.
Below are the general cosigner requirements:
- Credibility: Cosigners are required to have a good credit score. To demonstrate their ability to manage their finances and pay bills on time.
- Stable income: Cosigners are expected to have a stable source of income if the primary borrower doesn’t.
- Legal age: Cosigners must be of legal age, typically 18 years or older, to be eligible to sign mortgage papers.
- Trustworthiness: Cosigners must be trustworthy and willing to assume the responsibility of repaying the debt.
- Citizenship or residency status: Some lenders may ask for the cosigner’s citizenship.
What Are The Benefits Of Having A Cosign Mortgage?
Having a co-signer on a mortgage can have several benefits, including:
- Higher chance of approval: Having a co-signer with a strong credit score and financial history can increase the chances of loan approval.
- Lower interest rates: If the co-signer has a higher credit score and strong financial history, the lender may offer a lower interest rate on the mortgage loan. Thus resulting in lower monthly payments and a lower total cost of borrowing over the life of the loan.
- Larger loan amount: With a co-signer, the primary borrower may qualify for a larger loan amount.
- Faster loan approval: With a co-signer, the loan approval process may be faster, as the lender has added assurance of timely payments.
Hence, both the primary borrower and cosigner should discuss the loan terms before signing the agreement.
What Are The Drawbacks Of Cosign Mortgage Loan?
Co-signing a mortgage loan can have significant drawbacks, including:
- Financial risk: Default payments by the primary borrowers can result in significant financial hardship for the co-signer. He may be required to make loan payments which he did not directly benefit from.
- Negative impact on credit score: Late and default payments can be negatively impacted the credit score of the cosigner. This would make it difficult for him to obtain credit in the future.
- Strained relationships: Co-signing a mortgage loan can put a strain on the relationship between the co-signer and the primary borrower. If the primary borrower is unable to make payments, it can create a conflict between both.
Hence, it’s important to carefully consider the risks and potential drawbacks for the primary borrower and cosigner.
Cosign Mortgage: FAQs
1. Why do I need a co-signer?
Having a co-signer in the mortgage agreement can give you several benefits. Like,
i. Higher loan amount approval.
ii. Reduced rate of interest
iii. Higher chance of approval
iv. Quick process
2. Can a cosigner become the primary?
Situations like the inability to repay the loan by the primary borrower or the death of the primary borrower etc. can make the cosigner the primary borrower.
3. How long does a cosigner stay on a mortgage?
The co-signer can stay on the mortgage until the loan is fully paid. The primary borrower may remove the co-signer if he decides to refinance his current loan.
4. What is a cosigner responsible for?
A co-signer is responsible for guaranteeing the repayment of a loan if the primary borrower is unable to make payments. This means that if the primary borrower defaults on the loan, then the co-signer is legally responsible for making the payments on his behalf.
5. How to remove a cosigner from a mortgage?
You can remove the co-signer if you decide to refinance the mortgage or sell the property.
The Bottom Line
Co-signing a mortgage allows the primary borrower with lots of benefits in the loan application. But, it may have further drawbacks as well to have a co-signer. Hence, it’s advisable to discuss with the cosigner regarding the pros and cons of this process.Uncategorized