How to decide when it’s time to get a cosigner for your mortgage
Securing mortgage financing with a unique scenario can be a challenging endeavor. If your income is not enough or your monthly expenses gobble up most your income a cosigner may be in order. Here is how to determine when you really need cosigner…
First things first when your mortgage lender suggests a cosigner as a possibility what they’re really looking for is a borrower. They are looking for a borrower that can support the loan obligation with their blend of credit, monthly expenses, reserves and overall financial picture. When your mortgage company suggests getting a cosigner that is effectively meaning you don’t have enough income to support the type of mortgage that you’re looking for.
Whatever the circumstance when the lender suggests getting a cosigner you should take it with degree of strong consideration here is why. The lender will only suggest you getting a cosigner if your monthly expenses and proposed mortgage payment are too high with the income you have in supporting the proposed loan payment.
The cosigner does become as responsible for loan as the party they are a cosigning for. If the person who you cosign for does not make their mortgage payment you are financially on the hook for making that payment. Cosigning is permanent. The only way out of it is to sell the property or to refinance. No mortgage company will release a cosigner for convenience purposes even if the person who originally need a cosigner is earning more income. Lender would offer a refinance instead.
Times when you might need a cosigner
Let’s say you’re in a purchase contract situation when your file comes out of underwriting and your monthly expenses are deemed higher than with the credit report shows. This is something common with student loan for example. Lender suggests obtaining a cosigner. If you were up against the wire on a contractual time frame obtaining a cosigner sometimes can be the quicker, faster, path to the green rather than changing loan programs or putting down more money down to lower the outflow.
Another scenario is when you’re trying to refinance your home. And you just don’t show enough income on paper or you have a situation where the income that you have cannot be counted because there is just no history of it or you’re not paying taxes on it. In such a scenario, it would look on paper as though you don’t have enough income when in fact you really might. Mortgage lenders are on fixed allowance of what they can count as income as the overall industry is incredibly compliant and very bureaucratic.
If your lender suggests getting a cosigner in most cases the lender has already researched every other scenario and the cosigner scenario is the last resort that has the highest degree moving your file forward or opening a door to new homeownership.
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