If you can't qualify for a mortgage, you may be able to get the loan you need if you can persuade a friend or relative to co-sign on your loan. You don't typically have to add the co-signer's name to the title of your home unless the co-signer happens to be your spouse, and even then rules vary among states.
A co-signer does not appear on the title and does not own the home with you. Different rules apply if the co-signer is your spouse.
Who Needs a Co Signer for a Home Loan?
You can qualify for a home loan if you have good credit, enough income and sufficient cash to cover the closing costs. If you are deficient in any of these areas you may have to add a co-signer into the equation. Co-signers are subject to the same underwriting qualifications as borrowers. A co-signer with poor credit won't improve your chances of getting a loan while someone with excellent credit and minimal debt could revive your flagging dreams of home ownership.
Mortgage Co-Signing Responsibility
Co-signers agree to share the responsibility of repaying your debt. The mortgage will appear on your credit report as well as the co-signer's. If you miss a payment or allow the home to go into foreclosure then both you and the co-signer will see your credit score plummet.
Some people confuse co-signers with co-borrowers but the distinction between the two is simple. A co-signer's name doesn't appear on the title to your home while a co-borrower is someone who shares the debt and ownership rights to your home.
Different Rules for Co-Signing Spouses
Co-signing can become complicated if the proposed co-signer is your spouse. This situation could arise if you or your spouse decide to buy an investment home but can't qualify for a loan in your own right. In some states, you can buy investment property without adding your spouse's name to the deed but your spouse can co-sign on the loan. In other states such as Ohio, laws require both spouses to sign on real estate deeds. Like it or not, you have to assume the role of a co-borrower rather than a co-signer if your spouse buys an investment home.
Pitfalls of Co Signing
If your parents or in-laws agree to co-sign your loan, you might be relieved to know that they won't have an ownership stake in your house. This makes life a lot simpler when you are making decisions about decorating, renovations or upgrades. On the other hand, it is easier to convince someone to co-sign on a loan if that person actually owns the house in question. Many people are understandably reluctant to co-sign, when it means sharing your debt but not having a share in your real estate assets.
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