How Does Mortgage Co-Signing Work?
Every time new mortgage rules are introduced, fewer borrowers are able to qualify under traditional means for the loan amount they need.
If you’re having difficulty meeting traditional lender mortgage guidelines due to such realties as bruised credit, insufficient income and so on, you may benefit from having someone co-sign your application to help you qualify for a mortgage.
Having a co-signer makes the most sense when you simply need a boost to qualify for a mortgage on a home that’s within your means. It’s important not to opt for this solution if it’s going to be tough for you to make the payments.
It’s important to find a co-signer who compliments what you’re currently lacking on your application. For example, if your issue is poor credit, you want to bring a co-signer on board who has healthy credit. Or, if your income is preventing you from qualifying, you’ll want to find a co-signer who has strong income.
Co-signing can take a couple of different forms:
1. The co-signer becomes a co-borrower. This is similar to having a partner or spouse who’s buying the home alongside the primary applicant. Basically, this involves adding the support of another person’s credit history and/or income to the application. The co-signer is placed on title for the home and the lender considers this person equally responsible for the debt if the mortgage goes into default.
2. The co-signer becomes a guarantor. In this scenario, he/she is backing the loan and vouching that you’ll pay it back on time. The guarantor is responsible for the loan if it goes into default.
The most commonly accepted co-signors are parents or close relatives, and it’s possible for more than one person to co-sign a mortgage. A co-signer is likely to be approved when the lender’s satisfied he/she will help lessen the risk associated with loan repayment.
Once you feel that you’re strong enough to qualify for a mortgage without your co-signer, you can request a reconsideration of your application from your lender. If all goes as planned, you can then have the co-signer removed from title.
As this is a legal process, you’ll be charged a small fee, but this will free you from having a co-signer and release the co-signer from all responsibility for your mortgage.
Since removing a co-signer is technically a change to your mortgage, however, be sure to check in with your mortgage broker first to ensure this move doesn’t count as breaking your mortgage, which will cost you a lot more than legal fees.
Have questions about mortgage qualification, co-signing options, or your mortgage in general? Answers are a call or email away!