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What Borrowers Should Know About Co-Signing a Mortgage

June 22, 2016

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For younger people, first-time homebuyers, the self-employed and buyers with minimal credit or assets, qualifying for a mortgage may be difficult without the help of a co-signer. While having a co-signer with a strong credit history can certainly make qualifying for home financing easier – and possibly allow the signee to get better loan terms and interest rates – it also brings with it a variety of complications as well for all parties. Here is what you need to know about co-signing a mortgage:

It doesn’t matter how you are related
While one of the most traditional co-sign relationships is a parent co-signing for a child, a person doesn’t need to be a blood relative or married to the signee to add their name to a loan. Even still, just for the sake of trust and dependability, a closer relation is likely preferred. 

The co-signer is on the hook in case of default
This is one of the most serious implications of co-signing: If the loan defaults, both parties are held accountable. This can effectively ruin your credit, which makes it very important to work with your co-signer to establish that full-repayment is a possibility. 

There are two types of co-signers
Co-signers are broken into two primary groups: Non-occupant co-borrowers and occupant co-borrowers. As the name suggests, an occupant co-borrower plans to live in the home along with the primary borrower, while a non-occupant co-borrower is there primarily to vouch for the other signatory. Non-occupant co-borrowers are more common than occupant co-borrowers.

Ownership can be divided between co-signers
Both borrowers can be treated either as equal owners and share the title 50/50 or take the title as tenants in common, dividing their share of ownership as they see fit. This, however, still means borrowers are vulnerable in case of default. 

In our next blog, we will go further into co-signer considerations, including what it takes to qualify as a co-signer and how it might affect your ability to borrow on future loans.

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