Getting a mortgage to buy a home can be a challenging enough even when everything goes smoothly through the mortgage process, but for others there are additional hurdles they might have to overcome. For various reasons, you might be asked by the lender to supply a co-signer for the home mortgage before you are approved.
Reasons you Might be Asked for a Co-Signer
There could be a variety of reasons why a lender might ask you to supply a co-signer on a mortgage. First, you should not take the request as a refusal, but simply to mean that your circumstance are just a little bit short of meeting the mortgage security requirements for that particular lender. The lender is simply seeking to add a bit more financial security to bolster the security or repayment of the loan.
Lenders require both an adequate amount of income, and a decent and proven credit history when considering applicants. You might appear at the moment to be a little stretched on your budget as it relates to your current income versus your current debts. You might also have a spotty credit history which always makes a lender nervous. Nonetheless, that they are still willing to through with a mortgage is a positive sign even though they are asking for a co-signer.
What is the Role of a Co-Signer?
A co-signer is any person that would be willing to guarantee the ongoing payments of the mortgage should you default on a payment. Often, the most common choice for a co-signer is usually a family member. Needless to say, a co-signer is also taking a risk by offering you their financial backing so you must choose carefully as this is a very personal relationship with financial and personal ramifications for both parties.
The co-signer who agrees to co-sign your mortgage is assuming the risk and financial obligations of the mortgage because they are agreeing to repay the mortgage if you do not.
A co-signer cannot just be anyone because they also have to essentially prove their ability to re-pay the mortgage. They have to be able to qualify for the mortgage almost just as if they were applying for a mortgage on their own. This means they must show proof of their income, debts and show a decent credit history. A co-signer must also be able to show that they can good make good on the payments if you default. In other words, they must be able to prove they could absorb the additional debt load of your mortgage.
What happens if the Co-Signer isn’t approved?
Yes, your co-signer may not be accepted by the lender, but don’t despair as there is also an alternative possibility where they can still help. A co-signer who has not been approved may also be considered by the lender as a co-borrower. This means that the combined income of both parties would be shared by both parties to pay the mortgage. However, this also means they will be placed on the property title as co-owners of the property which has it own ramifications.
The good news though is that if your financial situation improves sufficiently enough you can arrange to remove the co-borrower from the property title if the lender feels you can now manage the debt on your own
Can you remove the Co-Signer from your Mortgage?
The answer is yes. If your circumstances change such as a promotion and raise, you can go back to the lender and have them re-evaluate your status. If they agree, and you can now manage the debt on your own, the lender can then remove the co-signer from the mortgage.
Alternatively, you can also go out and find a new lender because you are not necessarily obligated to remain with the same mortgage lender. However, make sure you know if and how much any penalty might apply.
Likewise, the co-signer also has the right to be removed from a mortgage. If that happens you will have to re-qualify for the mortgage with your existing lender or seek a new one elsewhere and apply again.
Photo by rkramer62
