Should you have a co-signer on your mortgage?

Imagine you’re trying to buy a home, but when you apply for a mortgage, your application is denied. Maybe you have poor credit history, or perhaps you don’t have enough credit built up yet, but a lender isn’t going to finance your loan. What now? Do you have to give up on homeownership altogether? Don’t worry — you still have a chance of purchasing a home by enlisting a co-signer on your mortgage. 

Sometimes, getting a mortgage isn’t entirely dependent on your own financial situation. If you can bring another individual with strong credit into the picture, they might be able to help you secure that mortgage. This is called a co-signer. Read on to learn more about how cosigning works, its pros and cons, and whether you need a co-signer on your mortgage. 

What is a co-signer?

A co-signer is like a secondary borrower on a mortgage. They aren’t the main borrower, but they act as a backup in case the primary borrower is unable to make a payment. Co-signers sign a contract promising to make the necessary payments in case the primary borrower defaults. This means they are tied to the mortgage in a much bigger way than if they were just loaning you money. Parents are often co-signers for their children when they rent an apartment or buy their first home, so the children can live independently but still have some security to fall back on. 

When do you need a co-signer on your mortgage?

There are a couple main reasons you might need a co-signer on your mortgage loan. The first reason is if you haven’t built enough credit on your own yet to be approved for a mortgage. Say you recently graduated from school, for example, and have only had a job for a few months. You may not have a good enough credit history to show lenders that you can handle a mortgage because there just isn’t enough proof of your financial history yet. You could likely get a mortgage in a few years if you keep building your credit, but if you want a mortgage now, that’s when a co-signer comes in. 

The other instance where you may need a co-signer is if you have sufficient credit history, but the history itself is poor. Maybe you have a past full of missed payments, for example. This can lower your credit score and make lenders unwilling to finance a mortgage for you as an independent borrower. By using a co-signer, it’s more likely that you can be approved for a mortgage.

What are a co-signer’s responsibilities?

A co-signer needs to have strong credit in order to take on this responsibility, since that’s likely why you weren’t approved on your own. However, this isn’t the only thing a co-signer needs to consider before they commit. A co-signer is agreeing to take over an entire loan in case of a default. They need to be able to make the required payments without putting themselves in a financially unstable position. This loan will also go on a co-signer’s credit report, so co-signers should think carefully about whether they plan to apply for any loans themselves in the near future, since this loan is considered additional debt. Co-signer responsibilities can vary, so it’s important to be clear on what their specific role is. 

Pros and cons of having a co-signer

The biggest advantage of having a co-signer is the potential freedom it gives borrowers. Having a co-signer on your mortgage allows you to get a loan when you can’t get one yourself, which can be a shortcut to becoming a home owner. Once you have that loan, you can start building your credit faster. However, if you weren’t approved for a mortgage, there was a reason. Do you have insufficient income or bad credit? If so, you may struggle with mortgage payments, even if you have a co-signer. Maybe you should save your money or build your credit score first, and then reapply for a loan to avoid a potential default.

What if I can’t find a co-signer?

You should ask someone you are close with, and someone you trust, like a family member or close friend. If you can’t find a suitable co-signer, this leaves you with a couple options. First, you can keep saving and building your credit, and reapply for a mortgage in a few years when you’re more financially stable. You could also turn to alternative lenders if you need a loan now. They are more flexible with credit scores, but in return, have higher interest rates for the perceived risk. Think about how important it is for you to get this loan now. 

It’s important to think carefully before asking someone to be a co-signer on your mortgage, or agreeing to do it. This is a much bigger commitment than loaning someone a bit of money, and you don’t want to put a loved one in a situation they aren’t comfortable with.

If you have questions about securing a mortgage, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.