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Co-signing a Mortgage

Carefully consider the decision to co-sign a mortgage

Co-signing a loan — which involves personally guaranteeing the debt for another borrower — represents a serious legal obligation and should not be entered into lightly. Of course, that’s even more important when it comes to co-signing mortgage loans, given the larger dollar figures involved.

Lenders typically look for three things in an ideal borrower:

  1. A stable income
  2. A strong credit history
  3. A low debt-to-income ratio
If any of these elements is lacking, the lender may require the borrower to seek a co-signer before approving the loan. Co-signatures are typically secured from parents, legal guardians and spouses, but they can be tendered by anyone with a relationship to the borrower.

Consider the responsibility of co-signing a loan

The Federal Trade Commission, which has primary responsibility for consumer protection, offers these important reminders for those who are considering co-signing a mortgage.

  • Be sure you can afford to pay if you have to, and that you are comfortable accepting this responsibility.
  • Remember you may have to pay up to the full amount of the debt, plus late fees and collections costs, if the borrower does not pay.
  • Depending on the state, the creditor can collect this debt from you without first trying to collect from the borrower. If the debt goes into default, that may impact your credit record.
Some experts suggest that before you co-sign a mortgage loan, you should draft a separate contract with the borrower under which both of you define your expectations for this transaction. It may also be a good idea to set aside an emergency fund to cover a few payments in the event the primary borrower has trouble making payments.

As a co-signer of a mortgage loan, you can guard against surprises by asking the lender to agree, in writing, to notify you when the borrower misses any payment. That may give you time to address the underlying problem and could potentially save you from having to repay the entire amount immediately.

One more thing to consider before you agree to co-sign a mortgage loan

Remember that co-signing a mortgage loan can affect your own borrowing capacity. That’s because lenders consider your co-signed obligations to be the same as any other debt you directly owe borrowers, and they would figure in such obligations in calculating your personal debt-to-income ratio.

In the case of a spouse with bad credit, some couples decide to apply for loans only in the name of the partner with the stronger credit history. That may be the right option for some, depending on the income of that spouse and the size of the loan being sought. But applying that way means only the one person’s income will be considered, which lowers the amount of the loan for which they will qualify. On the other hand, many lenders will consider it a deal-breaker when one spouse has bad credit. Experts note that a borrower’s sufficient pool of savings may be considered a mitigating factor, however, and in some cases could help nudge the lender into approving a loan application in the event of close calls.

Learn more about your home financing options

If you have additional questions about the home loan process, learn more about various Citizens Bank mortgage options and take advantage of our helpful home buying checklists and other tips. Or if you prefer, you can call one of our Citizens Bank home loan advisors at 1-888-514-2300.



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Mortgages and Home Equity Loans are offered and originated by Citizens Bank, N.A. (NMLS ID# 433960).