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Pros and Cons of Co-Signing a Mortgage + FAQs

12 mins read
couple discussing with a real estate agent about buying a house

Buying a house with a friend or family member can be a great way to get your foot in the door of homeownership, but it’s not always possible to come up with the full amount of a down payment and closing costs.

If you don’t have perfect credit, you may also struggle to qualify for a mortgage on your own. In these cases, co-signing a mortgage can help you qualify for a loan and buy a home. But should you do it?

To avoid making mistakes first-time homebuyers make, we’ll review the pros and cons of co-signing a mortgage so you can make an informed decision.

What is Co-Signing a Mortgage?

When you co-sign a mortgage, you agree to be responsible for repaying the loan if the primary borrower defaults. The lender will look at your income, employment history, and credit score to determine whether you can handle the payments.

You may not have trouble qualifying for the loan if you have a good income and a strong credit history. But if you have bad credit or are unemployed, the lender may require you to co-sign the loan. Sometimes, you may also be required to make a down payment or provide collateral.

Why Would You Need a Co-signer?

There are a few reasons why you might need a co-signer on your mortgage:

  • You have bad credit: If you have a low credit score, you may not qualify for a loan on your own. A co-signer with good credit can help you get approved.
  • You’re a first-time homebuyer: Lenders are sometimes hesitant to give loans to first-time homebuyers. When you have a co-signer, the lender knows there’s someone else responsible for making the payments if you can’t.
  • You don’t have a long employment history: Lenders like to see a steady employment history when considering a loan application. If you don’t have a long employment history or recently switched jobs, a co-signer can help offset this. 
  • You don’t have a long credit history: If you don’t have a long credit history, lenders may be hesitant to give you a loan. A co-signer can help offset this.

The Pros of co-signing a mortgage

You can get approved sooner.

Because the lender will take your co-signer’s credit and employment history into account, you may be able to get approved for a loan sooner than you would on your own.

This is especially helpful if you’re a first-time homebuyer with no credit history. By co-signing a mortgage, you can build up your credit history and improve your chances of qualifying for a loan.

You may be able to get a lower interest rate.

If you have a good credit score, you may be able to get a lower interest rate by co-signing a mortgage. The reason for this is that lenders see you as a lower-risk borrower.

Lenders also consider the credit score of the person you’re co-signing with. So, if your co-signer has a good credit score, you may be able to get a better interest rate. Naturally, this will lower your monthly payments.

You can buy a more expensive home.

If you’re struggling to qualify for a loan on your own, co-signing may help you get approved for a larger loan amount. This means you can buy a more expensive home.

Of course, this also means you’ll have a higher monthly payment. But if you can afford the payments, co-signing may help you get into the home of your dreams.

What are the Cons of Co-Signing a Mortgage?

The cons of co-signing a mortgage

You’re taking on a lot of risks.

Unfortunately, there are a lot of risks that come with co-signing a mortgage. The biggest one is that you’re responsible for the loan if the primary borrower can’t make the payments.

If the borrower defaults on the loan, your credit score will take a hit. And if you’re the primary borrower and can’t make the payments, your co-signer’s credit score will be affected.

Your monthly payments could go up.

If the primary borrower misses a payment or defaults on the loan, your monthly payments could go up. This is because the lender may require you to make up the missed payments.

Additionally, if the borrower stops making payments and the home goes into foreclosure, you may be responsible for any deficiency on the loan. 

This means you could be required to pay back the difference between what was owed on the mortgage and what the home sold for at auction.

You could lose your home.

If the borrower defaults on the loan, you could lose your home. This is because the lender may foreclose on the property, and you would be responsible for any deficiency on the loan.

Additionally, if you’re the primary borrower and can’t make the payments, your co-signer may be required to make them. If you can’t do this, the lender may foreclose on the property.

You may have a hard time qualifying for a loan in the future.

Co-signing a mortgage will likely impact your ability to qualify for a loan in the future. Whether you’re the primary borrower or the co-signer, your debt-to-income ratio will increase when you add a mortgage to your monthly budget.

This could make it difficult to qualify for a loan on your own. Additionally, if you’re the primary borrower and default on the loan, it will damage your credit score and your relationship with your co-signer. Check out these home buying red flags to know more. 

FAQs

Couple standing in front of a house they just bought together

Q: How do I know if I should co-sign a mortgage?

A: Ultimately, the decision to co-sign a mortgage is up to you. But there are a few things you should consider before making a decision.

First, make sure you understand the risks involved. Co-signing a mortgage is a big responsibility, and you could be on the hook for the loan if the primary borrower can’t make the payments.

Additionally, you should make sure you can afford the monthly payments. If you can’t, you could end up losing your home. Finally, think about how co-signing a mortgage will impact your ability to qualify for a loan in the future.

Q: Can I get out of a co-signed mortgage?

A: Maybe. If you’re the primary borrower, you may be able to refinance the loan without a co-signer. But if you’re the co-signer, it may be difficult to remove yourself from the loan may be difficult.

You may be able to do a “co-signer release” if the primary borrower meets certain requirements. But this isn’t always possible.

Q: What happens if I co-sign a mortgage and the primary borrower dies?

A: If you co-sign a mortgage and the primary borrower dies, you’re not automatically responsible for the loan. But if the estate can’t pay off the loan, the lender may come after you for payment.

You may also be responsible for the loan if you’re named a successor borrower. If the primary borrower died, you would take over the loan payments.

Q: Can I co-sign a mortgage with my spouse?

A: Yes, you can co-sign a mortgage with your spouse. But remember that you’ll be responsible for the loan if the primary borrower can’t make the payments.

Additionally, your monthly payments could go up if the primary borrower misses a payment or defaults on the loan. You may also be responsible for any deficiency on the loan if the home goes into foreclosure.

Q: Can I co-sign a mortgage for my child?

A: Yes, you can co-sign a mortgage for your child. But like with any co-signed mortgage, you’ll be responsible for the loan if the primary borrower can’t make the payments.

Conclusion: Is co-signing a mortgage right for you?

Co-signing a mortgage is a big responsibility. You could be on the hook for the loan if the primary borrower can’t make the payments. And if you’re the primary borrower, your debt-to-income ratio will go up when you add a mortgage to your monthly budget.

This could make it difficult to qualify for a loan on your own in the future. Additionally, if you’re the primary borrower and default on the loan, it will damage your credit score and your relationship with your co-signer.

Assess your risks and make sure you can afford the monthly payments before co-signing a mortgage. It’s also a good idea to consult with a financial advisor to see if co-signing a mortgage is right for you.

Louie Missap

I'm a real estate blogger and writer. I love helping people learn about the home buying and selling process. I've been through the process myself, and I know how confusing it can be. I'm here to help make it easier for everyone!

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