Co signer on a mortage loan
I would like to qualify for a mortgage loan. I am restricted on the amount I can qualify for, because my part time income falls under self employment. Unless I put 20% down. If I have a co-signer for the loan. Does the co signer have to be a family member? What are their obligations? How can it affect their credit? And could I re-finance in a few years to re live the co signer?
2 Answers from Attorneys
Re: Co signer on a mortage loan
As a matter of practical advice, I would be very careful borrowing money beyond what you can finance without a co-signer. In my experience, loan officers are happy to loan you more than you can afford, as long as they stay within the maximum limits imposed on them. Loan officers are usually commission employees. They get their commission even if the loan they give you is too much for you and you later default on the loan. If the loan officer says he can't loan you the money, ask yourself very seriously whether you are sure that you can afford it. Is your self-employment income really sufficiently secure to take on the size of mortgage you are looking for? Bankruptcy is a very painful process.
Having said that, co-signers typically do not have to be relatives, they can be anyone with the financial resources to satisfy the bank. Co-signer's are commonly relatives because few others are willing to obligate themselves to another's debt.
A co-signer should consider themselves a co-borrower. There may, or may not, be a requirement that the bank attempt to collect from you first in the event of default. However, if you default, the co-borrower is likely to find themselves (and their assets) on the hook for the amount of loan not satisfied through foreclosure proceedings.
How can it affect their credit? Although this may oversimplify the issue, a co-signer should look at this question believing that, if you default, they default. This can have a severe adverse credit impact. Further, the loan may show up on their credit report as a loan obligation that may affect their ability to borrow.
You can always refinance by taking out a new loan and paying off the old loan. If you do so, you will have to go through the loan application / qualification process all over again. You will also have all of the loan fees (appraisals, origination fees, etc) to pay again. A lender is unlikely to release a co-signer without a new loan being issued.
Although I understand the temptation to try to get financing in any manner possible, I would again urge you to be cautious in extending your credit beyond what you can qualify for alone. There are reasons for the limitations on lending that hold the commission earning loan officers in check. Typically, I advise people not to extend themselves even to the limits permitted by the loan officers because one never knows what turn of events may lie ahead that will increase your expenses or reduce your income. I hope this has been helpful. Let me know if I can help further.
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Dear LawGuru User:
Cosigners are fully liable on the debt with you. A cosigner need not be a family member.
If you default, the cosigner must pay or suffer a bad mark against his credit. Depending upon the terms of the documents you sign, on default, all remedies against you can be taken against the cosigner, including a suit for damages and foreclosure.
Often, the loan you take with a cosigner can appear as a liability on both your and the cosigner's credit report, and in some cases this can restrict the cosigner's ability to borrow money.
If your credit status changes and you are able to refinance the loan (in other words, obtain a different loan in your name alone to pay off the one which has a cosigner), the cosigner can be relieved of his or her obligation.
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