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What Co-Signing on Someone Else’s Mortgage Means for You

  • December 12, 2019

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If you have a good credit score, manage your debt responsibly, and have a steady income you may be asked to co-sign on somebody else’s mortgage loan.  For example, some parents may co-sign on their adult children’s mortgage to help improve their loan terms.  Just like co-signing on a personal loan or car loan, when you co-sign on someone else’s mortgage you’re agreeing to take on that debt and make the payments if the occupying borrower defaults. 

Co-signing on a mortgage is a serious decision and co-signing with the wrong borrower could damage your financial well-being.  Before you agree to co-sign on a friend or family member’s mortgage, ask yourself these questions:

What are my responsibilities when I co-sign on this loan?

When you co-sign on a mortgage you are taking on responsibility for that debt, if the occupying borrower fails to make a payment.  Do not co-sign on someone else’s mortgage unless you are financially able to cover their payment.  If no one is making the payment, everyone will be at financial risk. 

What are the risks of co-signing?

According to FICO, when someone with an excellent credit score (780 or above) misses a mortgage payment, their score can drop anywhere from 90 to 110 points.  This could be you if the occupying borrower misses a mortgage payment.  Co-signing will also increase your overall debt and may impact your ability to take out your own loan later on.  If you’re going to need to apply for your own loan of any kind in the near future, co-signing may not be the right move for you.

Can I mitigate these risks?

Before you co-sign on a mortgage loan, there are steps you can take to protect yourself. 

  1. Put your name on the title of the home – if the occupying borrower is unable to pay the mortgage, you will be able to sell the property.
  2. Monitor mortgage payments – find out when the occupying borrower’s payments are due and set up email or text alerts. You can even request access to their account to make sure payments are current.  After all, it’s your debt too.
  3. Stay in touch – check in with your occupying borrower to make sure they are able to make payments or find out ahead of time if there is going to be an issue. Proactive communication now can prevent a surprise missed payment later.

Do I trust the occupying borrower?

A CreditCards.com survey of over 2,000 US consumers found that 38% of co-signers reported having to pay back all or some of a debt they co-signed for.  28% of those respondents said their credit score dropped as a result.  Do you trust that the occupying borrower is going to responsibly repay their debt?  If so, co-signing is a great way to help them get a mortgage.  If you are unsure, seriously reconsider offering to co-sign.

 

Co-signing on someone else’s mortgage can be a huge financial risk if the occupying borrower does not repay their mortgage debt.  Before you co-sign on a mortgage with a friend or family member, consider the ramifications and do your best to protect yourself.

 

Sources: Realtor.com

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