Can Someone Cosign A Mortgage?

Even if it’s your first time getting a mortgage, you may need a little bit of help making sure the process can go as smoothly as possible. This may lead you to wonder whether someone can cosign a mortgage.

Can someone cosign a mortgage? Yes, someone can cosign a mortgage. When cosigning a mortgage, both the consignee and the cosigner will need to trust each other throughout this process. After the lender approves the mortgage, both of them will have to pay off their debts or risk foreclosure.

Keep in mind that cosigning a mortgage can be an extensive process. We’ll explain the benefits and risks of mortgage cosigning throughout this article. By the end, you’ll know if having a cosigner will aid you in getting your first home. 

Can Someone Cosign Mortgage

If you’re trying to establish credit, you have someone cosign your mortgage. Here are some examples of people who are most likely to use a cosign:

  •  Young Credit Builders: Young people tend to do this method to help establish a line of credit. They can get a cosign from their parents to ensure that they can receive a mortgage on their house. 
  • Financial Emergencies: People who have a financial setback tend to use cosigns for a property. For instance, the borrower could be going through a divorce or have limited income. Through a cosign, they can get a mortgage with fewer financial issues.
  • Limited Credit: If you have little or no credit, you can get someone to cosign a mortgage with you. This will allow you to receive a mortgage while building up your credit history over time. For people with bad credit, a cosigner might not help approve the loan. 

Cosigners are helpful if the primary mortgage borrower doesn’t have the income to fulfill the loan terms. In this scenario, the co-signer’s income will be taken into account when taking out the mortgage. 

Using a cosigner is a great way to help you buy a larger house and get a better loan. In addition, a cosigner helps you get the loan at a reduced interest rate, high loan amount, and smaller downpayment. 

While cosigners can help build a credit history, they can’t help potential homeowners with bad credit. When a mortgage application is evaluated, the company looks at the scores of the cosigner and primary borrower. 

Mortgage lenders will base their decision on who has the lower credit score. Thus, a cosigner won’t be able to help you if you have a bankruptcy on your record. But, they are still a good choice for young adults looking to build their credit. 

Usually, the cosigner will remain on the mortgage terms until the primary borrower is able to pay for it on their own. In this scenario, the cosigner can remove themselves from the loan by asking the lender to requalify the loan with only the primary borrower. 

If that fails, then you can refinance the mortgage via the primary borrower’s name. However, this process tends to cost a few thousand dollars. 

So, it’s not a good choice to get a cosigner unless you’re buying in a stable housing area and market. With declining home prices, it can be difficult to refinance the property until the prices start to recover. 

Mortgage cosigns are a great choice for people who can control their finances but can’t borrow at the best rates. For parents trying to offer financial assistance, it is a great way to help a young adult without having to tie up their actual money.

A mortgage cosign is a great idea for someone financially responsible but cannot borrow at a reasonable rate. Unpaid mortgage cosigns have repercussions, so you’ll want to be sure that the person you’re cosigning is trustworthy. 

Keep in mind that when you cosign a mortgage, it will appear on your credit history as well. Take time to discuss what happens if the primary borrower is unable to make monthly payments. Make sure that they understand that their financial negligence will also affect you. 

Benefits Of A Mortgage Cosign

Taking out a mortgage cosign can boost your credit score. When paying multiple monthly payments, you’re telling credit lenders that you have a track history of paying off debt. Thus, making it a good choice if you want to improve your credit score. 

Risks Of A Mortgage Cosign

Before taking out a mortgage, both the cosigner and consignee need to discuss how to pay it off on time. Like any loan, there are some risks behind it. Here are some of them:

Damaged Relationships Between Cosigner and Borrower

When cosigning a mortgage, there is a chance that the lender can sue you if you don’t pay it off. Financial situations can change while you can start making payments with good intentions. 

For instance, you could have a younger borrower who hides their financial shortfalls from their parents. This could lead to a deeper financial debt issue and a ruined trust between the child and the parent. 

Legal Issues With the Lender

If the lender cannot receive payments, they can attempt to collect money from the cosigner before reaching the primary borrower. The primary borrower had missed multiple payments at this stage, and the debt has started to affect your credit negatively. 

Lenders will take legal action when the payments are 90-180 days overdue. If this occurs, then the cosigner will have to pay the legal costs (including attorney fees).

Reduces Credit Access

The long-term disadvantage when taking out a mortgage cosign is that you might not be able to receive access to credit. Creditors will factor in your cosigned loan and decide that you’re too risky to give you more credit. 

Conclusion

To conclude, you can have a cosigner to help you take out a mortgage. Once the mortgage is approved, it’s up to both of you to pay it off in full. By doing so, you’ll gain a new home and a better credit history to show future creditors.