Many young couples dream of picket fences and homeownership. When the time comes to get a mortgage loan, you may get a shock that your credit history isn't good enough. Many underwriters recommend asking someone such as a parent to co-sign your mortgage loan for you. . Co-signers use their incomes and credit histories to guarantee payment on a loan. A co-signer has all the responsibilities but none of the benefits as the loan applicant.
A co-signer's main responsibility is to guarantee that payments are made on the account. As the primary borrower, if you miss a payment your lender may contact your co-signer to secure payment. The co-signer makes the payment on your behalf to keep her credit history intact.
Every mortgage loan varies, but generally speaking, a co-signer does not have property rights to the house. He cannot take possession of the property or sell it to recoup his money. It depends on whether the co-signer is listed as a co-borrower with property rights or as a simple co-signer. Check your mortgage documents for the exact status.
The lender may choose to go after the co-signer to pay the loan if you default. If the house goes into foreclosure, the lender may sell the house at auction and assign a bill for the difference between the sale price and the balance. The bill is sent to you and the co-signer and you both may be sued in civil court for the balance. If you file for bankruptcy protection, that protection does not extend to your co-signer, who is still liable for the balance due on the mortgage.
Everything that appears on your credit report in regards to this account also appears on your co-signers report. The account balance, payment history, any collection accounts, judgments or foreclosures all appear on the co-signers account. Negative entries lower your and your co-signer's credit score. Positive account history increases your co-signer's credit score.
Removing a Co-Signer
Removing a co-signer eliminates her liability and responsibility on the mortgage loan. However, it isn't as easy as making a phone call. The mortgage loan must be satisfied either through payment in full or through a refinance. Refinancing your mortgage loan when your credit score and income increases removes your co-signer from the loan and takes the risk from her hands. Removing your co-signer does not automatically happen. You must refinance your mortgage loan specifically excluding the co-signer from the refinance application.
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