Although its nice to be in a position to help someone close to you qualify for a mortgage (or to have someone who can help you qualify by co-signing), it’s not a decision that should be made lightly. Co-signing a mortgage could have a significant impact on future.
Here are some things you should consider before co-signing a mortgage application.
- Regardless if you’re the principal borrower, co-borrower, or co-signer, if you’re on the mortgage you’re 100% responsible for the debt of the mortgage and everything that goes along with that. Although the term co-signer makes it sound like you are somehow removed from the actual mortgage, you have all the same legal obligations as everyone else on the mortgage - including ownership rights. For everyone's protection, a signed co-ownership agreement specifying who owns how much of the property is a good idea, along with signed Wills for everyone on the mortgage and property title.
- If the person who you’re co-signing for is unable to make the payments for any reason, you will be expected to make them on their behalf. By signing the mortgage documents, you assume full responsibility for the payments (even if it’s not you making them).
- If payments aren’t being made, your credit is affected. Most people are likely aware of this, but it's worth repeating. If Jr. misses his mortgage payments, you're on the hook and you'll be getting those collections calls too.
- Once the initial term has been completed, you will not automatically be removed from the mortgage. The person who you co-signed for will have to make a new application for the mortgage in their own name and qualify on their own merit. If they don’t qualify at this time, you will be kept on the mortgage for the next term. It isn't required to wait until the end of the term to do this. A co-signer can be removed at any time, as long as the remaining borrowers qualify under then-current qualifying guidelines.
- When you co-sign for a mortgage, all of the debt of the co-signed mortgage is counted against you. This means that if you’re looking to buy another property in the future, you will have to include the payments of the co-signed mortgage in your debt service ratios, even though you aren’t the one making the payments. This could significantly impact the amount you can borrow in the future.