The most common question that I was asked this past week was "What are the consequences of co-signing for someone else’s mortgage"?
In 2010, if a someone looking to buy a home and they do not qualify because their income is too low, a non occupying co-borrower is a great solution, but it does come with serious responsibilities for the co-borrower and serious concerns for the home purchaser.
The first thing to address is the term "co-signor" vs. "Co-borrower". When you sign for someone else you are co-borrower with equal ownership and equal responsibility to repay the loan. It is not like the traditional co-signor relationship where if the loan were to default then you have to step up to the plate and pay it back, you are equally responsible. That means that the loan is on your credit report, if it is late, then you will be reported as late.
Let us answer the questions that come up:
How will this affect my credit?
This loan will be listed on your credit along with all of your other debts. If it is paid on time it will build your score. If it is paid late, it will harm your score.
Will only 1/2 the loan be my responsibility and only that portion be on my credit report?
Since you are an equal; partner in this mortgage debt, your credit report will reflect the entire liability, just like the primary borrower.
If I want to buy a house in the future, Will I be able to qualify for another mortgage if this mortgage is on my credit report?
If the loan is being paid on time, and the other party’s check is paying the loan and you can prove 12 months canceled checks from the other party, then this debt is excluded from the debt ratio. Now this is a current mortgage qualification guideline. As we have seen in the last 18 months there have been tougher restrictions on qualifications for a mortgage, so this may change, although I haven’t heard anything yet.
For how many years am I responsible
You are responsible for as long as the loan lasts.
If I have a co borrower, what happens if something happens to me, will they now "inherit" or "own" my house?
This is a great question. My answer is to speak to your attorney. There can be issues and they should be addressed up front. Your attorney should advise you on these sensitive issues.
How will this debt affect my debt-to-income ratio on other credit that I may have?
This debt will be on your credit report and can affect your ability to get credit.
Will I be considered a “First Time Home Buyer” if I am a co-borrower?
Some First time home-buyers programs only check to see if you have claimed the mortgage interest deduction on your tax return. So if you aren’t paying the mortgage and you do not claim the interest, you may still qualify. I would say that you should go into this assuming that you wouldn’t qualify and if you want to buy a home down the road, look into each available program at that time.
If I have poor credit, will a co-borrower with great credit help me?
We qualify customers based on the lower middle score of all the borrowers. So while a co-borrower with great credit is great, it won’t mitigate the fact that your credit is poor.
Who is the best candidate to be a non-occupying co-borrower?
In my opinion, someone who is very close to you, preferably a close family member like a parent or grandparent.
If you have any questions regarding any mortgage issue, contact Ann Zeilingold, Branch Manager of First Meridian Mortgage Corp. Licensed Mortgage Banker NY, NJ, CT, PA banking departments. 1609 Route 202, Pomona NY 10970. 845-354-9700 or azeilingold@yahoo.com.
