What You Need to Know Before Getting Someone to Co-Sign On Your Home

shutterstock_36199654If you have a poor credit history, but you still have your heart set on buying a home, you may find yourself needing to find someone to co-sign for your mortgage loan. Before you turn to someone to co-sign for your loan, however, it is important to know what this type of arrangement entails for everyone involved.

Why Would Someone Need a Co-Signer?

A co-singer is usually necessary if someone is unable to obtain a loan on their own. You may not be able to obtain a mortgage loan on your own if you have poor credit history, if you have a high debt-to-income ratio or if you have an unsteady job. You will also need a co-signer if you have a foreclosure or short sale in your past. While getting a co-signer does not guarantee that you will be approved, it does increase your chances because it gives the lender a greater amount of reassurance that the loan will be paid off.

Who Can Serve as a Co-Signer?

So far as lenders are concerned, anyone can serve as your co-signer. Of course, the better that person’s credit, the better your chances of being approved for the loan. Since co-signing for a loan is a very serious legal arrangement, however, it is best to choose someone who you trust who will be willing to remain involved in this agreement for the lifetime of the loan. Since mortgage loans typically last 30 years, you need to expect this person to be a part of your life for a very long time. For these reasons, most people ask family members or very close friends to be their co-signers. If you are married, your spouse will likely be your co-signer. For others, the co-signer may be a parent, a sibling, a grandparent, a long-time friend or even a business partner.

What is Required from a Co-Signer?

To co-sign for a loan, the person must be at least 18-years-old. The co-signer must also be willing to submit the necessary information to the lender. This information includes income, credit score, credit history and information regarding assets and debts,

How is a Co-Signer Affected by this Arrangement?

Even if the co-signer does not reside on the property, he is responsible for ensuring payments are made on the property. Therefore, if you do not make payments as agreed upon, the lender will ask the co-signer to make the required payments. Failure to make the required payments will harm your credit as well as the co-signer’s credit.

What Kind of Paperwork is Necessary When Having a Co-Signer?

Technically, there is no additional paperwork necessary when getting someone to co-sign for a loan other than the paperwork that you sign with the lender. You should, however, create a formal contract between yourself and your co-signer that specifies the terms of your arrangement. This agreement may include information such as who will pay the bills and who will actually occupy the home. The contract may also include information regarding what will happen if you are not able to make payments as agreed upon. This contract can be used to help prevent future problems if trouble develops in your relationship with your co-signer.

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