October 23, 2023

You have been asked to be a co-signer on a mortgage. Here are 6 things to consider:

6 Things for Co-Signers to Consider.
Are you thinking about co-signing on a loan or mortgage? If you’re looking to help out a family member or loved one, this is a great way to do that because a co-signer can help the borrower qualify and overcome the stress test and borrowing obstacles.

However, it is important to be aware of the implications when being a co-signer on a loan or mortgage.

💳 Credit History: Your own personal credit score and history can be affected. You are giving the lender access to your credit history. If the borrower makes any payments late or stops paying the loan for any reason, the late payments will negatively impact the co-signers credit score.

⚖️ Legal Implications: Always be sure to understand the taxes, legal, and estate situations that accompany co-signing, should the borrower fail to pay. A lawyer can help you review the loan agreement and advise of any items you may need to take note of.

🗓️ Timeline: Understanding how many years the co-signed loan or mortgage agreement will be in place and what your options are for making changes will help you determine the scope of the loan and if you can make changes at any point should the borrower become able to assume the entirety of the mortgage on their own in the future.

💰Personal Income Tax: Depending on the loan, you may have an obligation to pay capital gains taxes. It is a good idea to review your personal tax situation with an accountant or tax professional before signing off on the co-borrower agreement to ensure no surprises.

🤗Relationship with Borrower: This is a vital consideration for going in on any loan. Do you trust the individual? Are you aware of their financial situation? Are you willing to potentially put yourself at risk to assist them? These are all important questions as many of us may want to help out family or loved ones, but it is important to ensure that the individual is reliable.

🔮Future Finances: Lastly, consider your future finances and if you have any plans in the future that could be impacted by an additional loan. How much flexibility do you need for yourself and your family? If you have plans to purchase a new home, refinance your existing home, or make any other changes to your own mortgage, being a co-signor could affect and limit your options.

Co-signing for a loan always requires careful consideration and it is a large responsibility. However, when done correctly and with people you trust, it can be a great way to assist family members or loved ones with their goal of homeownership. If you are considering co-signing on a loan and have any questions please contact us today!

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