What is the point of a mortgage co-signer? Mortgage co-signers can be a great asset for home buyers looking to enter the housing market. However, it’s important to think carefully before asking a person to co-sign on a mortgage, and before agreeing to be a co-signer. Here are the essentials to know about this role!
What is a co-signer?
Mortgage co-signers are people who are responsible for a mortgage, even if they are not the homeowner or buyer. When someone co-signs on a mortgage, they are agreeing to be a secondary borrower and an alternative source of financial support if necessary. If the primary homeowner cannot afford their payments, the lender will turn to the co-signer. This is a binding commitment because it means you are promising to ensure the mortgage is paid. Co-signers are much more involved than a person who gifts a down payment, for example.
The most common instances of mortgage co-signers occur when parents are supporting a child who is buying their first home. Many parents help their children as they first get on their feet in the market. However, a co-signer doesn’t need to be a parent. For the most part, anyone can be a co-signer on a mortgage as long as they have the financial means to do so.
When might a buyer need a co-signer?
Mortgage co-signers come in when the buyer either doesn’t have enough of a financial history to support a mortgage, or their financial history isn’t very stable. First-time home buyers may be young people who do not have a long history of making payments and proving their creditworthiness. If they are eager to purchase a home, using a co-signer can help speed up the process. For someone whose credit history is a bit shaky, lenders may not feel comfortable granting them a mortgage. If someone in this position can secure a co-signer, this provides the lender with more reassurance.
Co-signer duties
As we mentioned, a co-signer is committing to the mortgage and is therefore heavily invested in its success. In order to be a co-signer, the person must be financially stable and have a strong credit history. Since they are an extra layer of protection and assurance for the lender, they need to have the means to support the mortgage. In terms of responsibilities, a co-signer is fully on the hook for the mortgage if the primary homeowner is unable to make their payments. This mortgage will go on the co-signer’s credit report, meaning it’s essential to think very carefully before agreeing to this duty. Problems with the mortgage could reflect poorly on the co-signer. If you are considering co-signing on a mortgage, it’s best if you don’t plan on applying for any large loans yourself in the short term.
The benefits and drawbacks
The obvious advantage of mortgage co-signers is they provide home buyers with a way into the housing market that they may not have been able to access otherwise. A person with poor credit or lack of credit history is able to save time and stress, because a co-signer acts as a bit of a short cut. This is handy when a home buyer wants to enter the market as soon as possible. On the other hand, people with co-signers might not be in a financial position to pay their mortgage, even with extra support. If you require a co-signer, this implies you may encounter some form of financial barrier. It’s important to ensure you can actually make your mortgage payments so you don’t have to rely on your co-signer.
Mortgage co-signers are certainly helpful resources for home buyers who need a boost entering the market. Of course, they are not the best option for everyone! It’s very important to evaluate your situation before deciding whether you want to secure a co-signer, or agree to be one. You can reach out to a mortgage broker to discuss the role of a co-signer in more detail.
If you have any questions about your mortgage, get in touch with me!