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

Comments

Generally, the answer is no. Very risky proposition. Important subject though and thank you for sharing Dora Griffin

Posted by Jeff Masich-Scottsdale AZ Associate Broker,MBA,GRI, Arizona Homes and Land Group/ Buy or Sell (HomeSmart Real Estate) 4 months ago

In reality, co-signing is not a  great option especially if you plan on making any kind of a large purchase as it can affect your ability to buy

Posted by William Feela, Realtor, Whispering Pines Realty 651-674-5999 No. (WHISPERING PINES REALTY) 4 months ago

Thanks for the comments. I totally agree. By the time I speak with home buyers sometimes it is too late. Best case we have to hope the primary is paying on time and that they can document those payments are from their own funds.

Posted by Dora Griffin, NMLS 6380 (D A Griffin Financial.LLC) 3 months ago

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