Cosigning a loan can be a great way to help a loved one get a home. It may also make you eligible for a higher mortgage. However, there are a few things you should know about cosigning.
First, the cosigner should have a credit score of at least 700. This is because the lender will use this score to evaluate the applicant. If the cosigner does not have a good credit score, the borrower is not likely to qualify for the loan. In other words, a cosigner should be willing to take a risk on the applicant. Also, a lender will want to see a blemish free credit report.
Another consideration is the debt to income ratio. The DTI measures the amount of debt the primary borrower can comfortably carry. Typically, lenders will not allow a cosigner with a debt to income ratio above 60%. That’s because the main borrower will have to come up with the cash for the down payment. Using a cosigner for this purpose makes sense if the borrower can afford the down payment.
Getting a mortgage cosigner can be a good idea if the borrower is having trouble getting a conventional loan or if they have a bad credit history. A cosigner can help a borrower re-establish their credit without having to risk a high interest rate. Even if the borrower has a credit score above 600, the mortgage will still be considered a debt. As such, the lender will still want to verify the borrower’s income. Depending on the lender, they may request bank statements or information about their retirement accounts.
Another reason why cosigning a loan might be a smart move is to help a loved one establish their own credit. Unfortunately, immigrants are not usually well versed in the financial basics. Fortunately, there are government programs to help first time homebuyers. Some of these programs offer assistance with down payments and home buying classes.
A cosigner is also a great way to prevent a foreclosure. This is because the cosigner is responsible for paying the loan off if the primary borrower fails to make repayment. Because a foreclosure will show up on a borrower’s credit record, a cosigner should only be used if the borrower has a track record of making timely payments.
Getting a cosigner is no simple task. Not all lenders are lenient on this. You might be required to take a homebuying course or to pay for mortgage insurance. There are also laws and regulations regarding the issuance of a mortgage cosigner, and the lender should be able to provide you with additional details.
In the end, the best way to decide whether or not you should use a cosigner is to weigh the pros and cons of each. If you are unsure of your options, consult a Home Lending Advisor. They can help you understand your options and assist you in obtaining the best loan for your needs.