For younger people, first-time homebuyers, the self-employed and buyers with minimal credit or assets, qualifying for a mortgage may be difficult without the help of a co-signer. While having a co-signer with a strong credit history can certainly make qualifying for home financing easier - and possibly allow the signee to get better loan terms and interest rates - it also brings with it a variety of complications as well for all parties. Here is what you need to know about co-signing a mortgage:
"For some borrowers, it may be difficult to qualify for a loan without a co-signer."
It doesn't matter how you are related
While one of the most traditional co-sign relationships is a parent co-signing for a child, a person doesn't need to be a blood relative or married to the signee to add their name to a loan. Even still, just for the sake of trust and dependability, a closer relation is likely preferred.
The co-signer is on the hook in case of default
This is one of the most serious implications of co-signing: If the loan defaults, both parties are held accountable. This can effectively ruin your credit, which makes it very important to work with your co-signer to establish that full-repayment is a possibility.
There are two types of co-signers
Co-signers are broken into two primary groups: Non-occupant co-borrowers and occupant co-borrowers. As the name suggests, an occupant co-borrower plans to live in the home along with the primary borrower, while a non-occupant co-borrower is there primarily to vouch for the other signatory. Non-occupant co-borrowers are more common than occupant co-borrowers.
Ownership can be divided between co-signers
Both borrowers can be treated either as equal owners and share the title 50/50 or take the title as tenants in common, dividing their share of ownership as they see fit. This, however, still means borrowers are vulnerable in case of default.