One of the first steps towards homeownership is applying for a mortgage. However, qualifying for the loan may be impossible for some individuals without the help of a cosigner. A cosigner agrees to share the responsibility for the debt with the primary signer. This means that this person will have to pay the mortgage should the primary owner fail to do so. He or she will also suffer the consequences if the home is foreclosed on. Therefore, those applying for loans should consider both the risks and benefits of enlisting the help of a cosigner.
Higher Credit Score, Lower Interest Rate
Prospective homeowners are most often denied a mortgage due as a result of low credit scores. Even when these individuals are not denied, a low credit score will still guarantee a high interest rate. In these types of cases, enlisting the help of someone with a better credit score who will add his/her name to the loan is beneficial. The combined credit scores of the primary signer and the cosigner will qualify the prospective homeowner for a loan with a lower interest rate.
Stable Income Required
Lenders require those applying for mortgages to present proof of consistent income. Those who are self-employed, have gone through period of unemployment, or started a stable job only within the last year usually find it difficult to provide this proof. Prospective homeowners unable to fulfill this employment requirement will be denied the loan. A cosigner who has proof of a steady job can fulfill the employment requirement in place of the primary signer and thus, help land the funds.
Who Should Be the Cosigner?
Cosigners should be people who share a close and trusting relationship with the primary signer. Oftentimes, they are direct family members or other close relatives. If the home will be a shared purchase between spouses, then it is best for the spouse to be the other individual named on the mortgage. Even if the spouse’s credit score is similar to or lower than that of the primary signer, adding them to the loan can still help fulfill the employment requirement. Of course, people who will not be living in the purchased property can be cosigners as well, and often are.
Consider The Risks
A cosigner takes on a large amount of risk, such as putting his credit reputation on the line. Adding one’s name to a mortgage also increases the likelihood for becoming a victim of creditor harassment if the homeowner fails to make payments. Many people who personally back a loan only aim to help a loved one qualify for a loan and do not think of the possible financial burden. For that reason, the responsibilities of both individuals regarding payments and actions to take if the loan defaults should be detailed in a contract both parties sign. Prospective homeowners should make sure they can afford the loan they are applying for with or without a cosigner. In addition, they must take extra care not to default on the mortgage and start the foreclosure process, as doing so will not only damage the credit scores of both parties, but could also hurt their relationship.
If you are struggling to make mortgage payments or find yourself in danger of defaulting on your mortgage, an experienced Miami foreclosure defense attorney at Graham Legal can help. Call us today for a free consultation.