Top Five Things You Need To Know Before You Co-Sign A Mortgage!
Lenders are willing to lend money to applicants who have an excellent credit history and stable income. Unfortunately, when borrowers are unable to fulfill mortgage requirements and lender rules, they sometimes require a co-signer with sufficient credit scores and healthy finances to help them qualify for a mortgage. As a co-signer, this is where you step in.
Once you co-sign a mortgage, you are essentially vowing to pay for a mortgage on behalf of the borrower. In other words, you are telling the bank that if the borrower stops making payments, you will clear off their debt. While it is a kind gesture, there are risks involved which can have a significant impact on your future.
Even if your friend or family member urgently needs you to co-sign, take some time to evaluate your financial situation and learn about the possible outcome with co-signing. To provide you with accurate information about co-signing and be more informed about the process, Quickfire Mortgage Solutions has put together a list of the top five things you need to know before co-signing a mortgage.
1. You are responsible for the debt.
Regardless of whether you’re the principal borrower, co-borrower, or co-signor, if you’re on the mortgage, you’re entirely responsible for the debt of the mortgage and everything that goes with it. Although the term co-signor makes it sound like you are somehow removed from the actual mortgage, you have the same legal obligations as everyone else on the mortgage.
2. Payments are also your responsibility.
If the person whom you’re co-signing for is unable to make payments for some reason, you will be expected to make them on their behalf. By signing the mortgage documents, you assume full responsibility for the payments (even if it’s not you making them).
3. Legal action could be taken against you for non-payment.
If payments aren’t being made, there is a chance the lender will take legal action against you. This includes all available collection methods such as obtaining a judgment in court or garnishing your wage or bank accounts. In the worst case scenario, they could actually go after your property or assets in order to cover their losses. Now, this is highly unlikely, but not out of the realm of possibility.
4. You’re tied to a mortgage until it’s paid in full.
Once the initial term has been completed, you will not automatically be removed from the mortgage. The person whom you co-signed for will have to make a new application for the mortgage in their own name and qualify on their own merit. If they don’t qualify at this time, you will be kept on the mortgage for the next term.
5. A co-sign mortgage affects your credit score.
When you co-sign for a mortgage, all of the debt of the co-signed mortgage is counted against you. This means that if you’re looking to buy another property in the future, you will have to include the payments of the co-signed mortgage in your debt service ratios, even though you aren’t the one making the payments. This could significantly impact the amount you can borrow in the future.
While co-signing can help a borrower get approved for a mortgage, if you are unaware of the risks involved, you are putting yourself in a compromising position. To be better prepared the next time you co-sign a mortgage, enlist the services of a mortgage broker or agent.
As a leading mortgage broker in Edmonton, AB, Stefan Cherwoniak at Quickfire Mortgage Solutions can advise and educate you about co-signing a mortgage. I provide mortgages for pre-approvals, new home purchases, first-time home buyers, refinancing, renewals, and so on.
To learn more about the mortgage solutions that I provide, please click here. If you have any questions about co-signing a mortgage or want to schedule an appointment with me, get in touch with me by clicking here.