When a person wants to buy a home, the lender will look closely at his credit history, paying particular attention to his ability to repay the loan. If the person has a shaky credit history, or if he hasn’t got much of a credit history at all, the lender may request that he find a co-signer. Adding the co-signer’s credit history and income to the original borrower’s information often produces a much more favorable scenario as far as the lender is concerned, resulting in the borrower getting his mortgage. At this point, the co-signer is on the loan until it is paid off or until he is removed as a co-signer.
Co-signing a loan means that you are accepting legal responsibility for that debt. If the original borrower defaults for any reason, from losing his job to dying, you, as the co-signer, must pay the debt in his place. While you and the original borrower may have an agreement that he will make the payments, in the eyes of the law you both have the same duty to make payments, and if he doesn’t pay, the lender can come after you for the full amount.
Once you have co-signed for a mortgage, you remain on the loan for as long as that loan exists. If you want to remove your name from the loan, you must follow the appropriate process for doing so. It isn’t up to the borrower to remove your name, and you cannot do it simply because you want to; you must go through a legal process to remove your name as co-signer, officially ending your obligation for the debt. The lender does not have to remove your name from the papers just because you want it removed.
In many cases, a person who was thought to be a risky investment when the mortgage was originated is able to remove the co-signer’s name after a few years, once she has proved she is able to make the payments and has built up her credit rating. Typically this is accomplished by approaching the original lender and requesting to remove the co-signer, though you always have the option to find a new lender instead. The loan is refinanced in the original borrower’s name only, the deed and other paperwork reflect this, and the co-signer is removed and is no longer responsible for the loan.
Give plenty of thought to the situation before agreeing to co-sign on a loan, especially for a mortgage, where you may be responsible for the payments for the next 30 years. Even if the borrower is someone you trust, unpredictable things can happen that make the borrower unable to pay and leave you stuck with the bill. You may be able to sell the property and recover some or all of your money, but this is uncertain at best and still leaves you and your credit rating vulnerable for a period of time. In the meantime, the debt counts against you just as though it’s your own mortgage and can impact your ability to get a loan of your own.
- Thinkstock/Comstock/Getty Images