Co-signing is the act of accepting another person’s debt which involves a legal bond made by a co-signer to make payment on another person’s debt when he or she default. Therefore, a co-signer is anyone who agrees to the legal obligation that if the debtor fails to pay the loan, then they will be legally responsible for repaying the loan.
Using Mortgage Co-signers requires financial considerations and some questions that need to be answered before using a co-signer like; will you be able to afford the mortgage or are there chances that you will miss payments? Ask yourself this, what are a co-signer's expectations?
The truth about using mortgage co-signers
As an individual, it is more difficult to qualify for a loan when you have little or no credit stability. Therefore, a creditworthy co-signer is necessary. It is beneficial to have a creditworthy co-signer, one of these benefits being, an opportunity for substantial savings on your total cost of your loan.
How can you be a co-signer? A good number of individuals can be a co-signer provided they understand and agree to the responsibilities of being one and also prove that they are creditworthy. Note that anyone with excellent credit history and can repay the loan is termed creditworthy.
How do you tell a co-signer is good for you? Consider the ability to pay back the loan; this can be done through proper evaluation of the co-signer debt and the total income. Secondly, is the co-signers stability, evaluate whether the co-signer has a good credit history and stable income or job. Lastly, be sure if the co-signer is willing and ready to pay the loan, this involves evaluating the credit scores and history of payments on loans like mortgages and credit card loans.
How do you approach a co-signer? Propose your plans on how you are going to pay off the mortgage. Present to the co-signer a plan that will go into details on what will happen if you cannot pay off the mortgage. When you stand a good chance to handle interest and principal payments, you are at liberty to apply for the release of your co-signer from your loan. It is of much value to choose Co-signers wisely in order to enjoy the benefit of co-signing.
What happens when the co-signor files for bankruptcy? It is important to understand and note that you can not sue your co-signer after he or she has been set free by a bankruptcy court, the law prohibits you from that. Also, there is a co-signer debt, for example, taxes, are exempted from being discharged when bankruptcy is filed. 'Discharge' in a bankruptcy case does not clear or do away with the debt as believed by many.
The fact is that discharge only makes the loan legally unenforceable against the individual who had filed the bankruptcy. In co-signing, each of the parties is held liable for that debt. The creditors can legally collect dues from one or all the co-signers till the debt is cleared.
Meanwhile, a co-signer filing bankruptcy has no influence on others. Also, it doesn't influence the credit ratings of other loan co-signers as long as they don't default on the mortgage payments.
Are co-signers good credit helpful? When you are in debt and can't afford to pay due to limited credit, co-signing is a better solution irrespective of your bad credit. It is up to the loan providers to approve or reject you depending on the facts of your credit report.