Home loans can be difficult to come by for buyers with less than perfect credit or for those who might have accumulated a few blemishes in their financial history. Co-signers can be one solution that makes the purchase possible without changing the basic structure of the loan. The co-signer's income and good credit rating can help the primary borrower obtain mortgage approval. But if the primary borrower defaults, the co-signer could end up paying the freight.
TL;DR (Too Long; Didn't Read)
A co-signer on a mortgage is responsible for the loan but has no rights as a property owner. A co-signer may or not may help the primary borrower make the mortgage payments, depending on the agreement between the two of them.
Latitude in Monthly Payment Obligations
The extent to which a co-signer is responsible for making the monthly payments on a mortgage loan is up to the parties involved to decide. Some co-signers merely sign the paperwork so that the main borrower is allowed to also use the co-signer's credit history to be able to get the loan and buy the house.
Some go in as partners on the loan to lighten the load for relatives who can't make it on their own. In this case, the co-signer may agree to pay a part of the payment each month and will be responsible for doing so at the risk of both her and the other signer's credit status. Should either default, both are liable.
Co-Signer Rights and Responsibilities
Although the co-signer is responsible for the loan if the signer defaults, she is not considered an owner of the property and has no rights to it at all. The co-signer's finances are scrutinized, and her credit history will show a commitment to the home loan she has signed for, but she will not enjoy the value of the property as an asset.
In some ways, being a co-signer is the worst of all worlds. It comes with all the responsibility and risk and none of the benefits of being a homeowner.
Getting Off the Loan
Co-signers possess a few ways to remove their names from a mortgage. If the main borrower decides to refinance the loan and has the financial means to get approved on her own, your name will be removed as a co-signer, and your responsibility to pay ends. If the main borrower or the co-signer pays off the loan in full, the co-signer is also off the hook.
If a mortgage cosigner dies before the loan is paid in full, the liability then falls completely on the main borrower. If the main borrower defaults by the time of the co-signer's death, the cost of the loan may be taken from the estate of the deceased.
Co-Signer Bankruptcy Considerations
If the person for whom you co-signed the home loan runs into financial difficulties, she may have to file for bankruptcy protection. In this case, the home in question might be lost depending on the type of bankruptcy filed, and the loan might be removed from her credit report.
In the case of a bankruptcy in which the home loan is wiped away for the signer, the co-signer is not penalized with a bankruptcy on her own credit history. She is, however, considered to be the only party responsible for paying the loan in full because the main borrower is now off the books.
Robert Morello has an extensive travel, marketing and business background. He graduated with a Bachelor of Arts from Columbia University in 2002 and has worked in travel as a guide, corporate senior marketing and product manager and travel consultant/expert. Morello is a professional writer and adjunct professor of travel and tourism.