SHOULD YOU CO-SIGN A LOAN?

SHOULD YOU CO-SIGN A LOAN?

 

In the mortgage lending business we often discover when pulling credit that an applicant has co-signed a loan for another party. Most often that is for a close family relative, sometimes it is for a friend. When co-signing a loan many co-signors get it wrong in that they simply think they are lending their credit score or history to get another party a loan. They rarely consider the fact they are obligated to make the payments in the event the borrower does not. 

The facts are that if one agrees to co-sign a loan they are agreeing to allow a lender to use their good credit standing to make a decision to lend and agreeing to pay if the primary party does not, while risking their credit standing and spending capability.  Co-signing can be problematic when the co-signor is seeking other financing because the debt is counted against the co-signor. Now, with some mortgage loan products if an applicant can show the primary borrower on the cosigned loan is making payments from their own funds for an extended period there may be a way around the debt.

Particularly if one sees a home purchase in their near future they should NOT co-sign a loan for another party. In general, it is often not a good idea to co-sign without careful consideration of the consequences.  One could end up with a debt to pay or damaged credit if the primary responsible party does not pay in a timely manner. Too often if one co-signs a loan they don't pay any attention to whether that debt is being paid on time until their credit is ruined. 

Use extreme caution when considering a co-sign. At a minimum you may take the proactive step of collecting funds from the primary party and paying the loan yourself or carefully monitor that payments are being made. Know that when you co-sign YOU are guaranteeing the loan to be paid. 

 

Comment balloon 3 commentsDora Griffin • August 24 2018 03:34PM
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