When you co-sign a mortgage, you're not buying a house; you're helping someone else buy a house. Your name doesn't go on the title -- just on the mortgage. The buyer takes title and gets the primary responsibility to pay off the home loan. If he stops writing the check, however, paying the mortgage becomes your responsibility.
Co-signing Vs. Co-borrowing
Both co-borrowing and co-signing require two people to put their names on a mortgage note. When you co-borrow, you usually take ownership alongside the other buyer: both names go on the deed, or multiple names in the case of multiple borrowers. When you co-sign, you back up the primary buyer's finances with your own income and credit score. A typical example is a parent who chooses to be a co-signer so that a child with little credit history can qualify for a house.
Co-signing a mortgage is much like applying for a mortgage of your own. As the loan depends on your financial information, you submit your data alongside the buyer's. The lender reviews your income, job history, credit history and other data. Your financials may become the deciding factor in the mortgage process: the buyer probably wouldn't ask for your help if he had the credit scores and income to land the mortgage without you.
Co-signing gives you the responsibilities of taking out a mortgage without the benefit of owning the house. Once you sign on the dotted line, you're legally responsible for the mortgage just as much as the buyer is. Even though your name isn't on the title, if the buyer starts missing payments, it's going to hurt your credit right along with his. If worse comes to worst and he defaults on the loan, the lender can demand you pay up instead.
No matter how close you and the buyer are, disputes over mortgage debt could wreck your relationship. Writing an agreement before you sign is one way to prevent disaster. It could say, for example, that if the buyer defaults and you step in to pay the mortgage, he's obligated to deed the house over to you. As long as his name is on the deed alone, it's not yours, even if you make all the payments.
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