Things To Know If You Are Cosigning On A Home Loan

Co-Borrowers are people who have signed together on the contract note and are held equally responsible for paying back the loan.

Having a co-borrower on a loan can make things easier and at the same time can be a source of a lot of complications at the time of taking the markets as well as later.

When one co-borrower has a better credit than the other

When one of the borrowers has a better credit than the other it might interfere with the prospects of getting the mortgage loan at good interest rates. The good credit borrower may be able to get the mortgage at a lower interest rate but the presence of bad credit borrower will raise the interest rates.

One way to deal with this situation is to have only the good credit borrowers apply for the loan. But then the issue arises as to whether just one borrower can qualify for the amount that will be enough to purchase the home that he has in mind. Lenders typically like to have more than one borrower responsible for the loan in order to safeguard their investment. Having just one borrower apply for the loan will limit the loan to the income potential of that particular borrower.

Before the financial crisis it was quite common for a single person with good credit to buy of home using a program that did not require verification of information. But ever since the real estate meltdown full documentation has become the rule and programs that support incomplete documentation or unverified income are not in practice anymore. Another possibility is to have a third-party with good credit signed on the mortgage loan application but then there are very few people who are willing to undergo this role with the exception of parents.

Problems with Mortgage When Co-Borrowers Split

As mentioned before having a co-borrower was on a mortgage loan makes the process simpler and easier in certain respects it can also lead to a lot of complications in the future when the co-borrowers happen to split regardless of whether they were married or not. However more difficulties could arise with an unmarried couple because unmarried couples tend to purchase a house more recklessly. When the couple splits there are issues at hand that should have been dealt with before but usually are not. These issues prevent a clean and amicable separation.

These are some of the issues that you should resolve with your partner before you make approaches on the home.

Read what problems can arise when co-borrowers a mortgage part ways and how to deal with them.

Tags: