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.
Leigh Thompson began writing in 2007 and specializes in creating content for websites. She has been published online in various capacities. Thompson has an associate degree in information technology from the University of Kansas and is working on a bachelor's degree in business and personal finance.