Whenever you need to apply for a mortgage, but you don't meet the minimum loan application threshold, a cosigner may come with healthier financial muscle and help you qualify for the mortgage. Mostly, consigners are friends or close relatives who commit to being responsible for the loan and paying your mortgage if you default.
Who May Benefit from a Cosigner?
Primarily, a cosigner may help the following category of individuals:
- Mortgage applicants with irregular income: if you have income that varies from month to month, you may consider reaching out to friend or family member to become a cosigner who will agree to take on the financial responsibility of the loan.
- Junior mortgage applicants: lending institutions will always check your financial history before processing a mortgage. If you prove green in your records, you may be required to have a cosigner in order to get approved.
What Help Does a Mortgage Cosigner Bring?
As indicated, a close relative or a friend can agree to be contractually responsible for repaying the mortgage if you default on the obligation. A cosigner comes in handy in the following situations:
- When you have poor credit
- If you possess a high debt to income ratio (above 43%)
- Limited pensionable history
- If you need a mortgage but you are self-employed
- To clear your required initial payment
Before the lender agrees to loan to you, they will first consider your cosigner's assets, liabilities, and credit history as part of your mortgage application process. These documents from your cosigner work to improve your ability to secure better borrowing terms.
A cosigner comes as a boost to the primary borrower. Contrary to a co-borrower who has shared responsibility for the debt, a cosigner vows to take care of the entire balance if you default the mortgage at any time.
What Does Your Cosigner Risk?
Requesting a relative or a colleague to cosign your mortgage should never be taken lightly. It’s an enormous financial commitment that puts your cosigner at the center of the application and risks them losing their assets or money if you default. In addition to ruining your reputation and spoiling a good friendship, a slight financial mistake on the agreed repayment terms may cause your cosigner bad credit.
Can I Remove a Cosigner?
Unfortunately, there’s no possible way to remove your cosigner from a loan. The most applicable method is through a refinance, which will require a new application and approval. If you’ve acquired and lived in your residence for some time, consider refinancing your mortgage to remove your cosigner from responsibilities attached to your mortgage.
Bottom Line
While a cosigner may be one way to get approved and secure better mortgage rates if you have less than an excellent credit score, only include a cosigner if you are sure to make the agreed monthly payments. Also, if you are thinking of cosigning on another person's mortgage, ensure you trust them to make their monthly contributions to avoid getting yourself into unnecessary financial entanglements.
At CSMC Mortgage, we will provide you with advice to help you make sound decisions regarding mortgage financing. Please contact us online or call us directly at 805-212-7710 to speak to one of our mortgage loan originators.
