So you’re thinking about co-signing for a mortgage? Do you really know what it means to be a mortgage cosigner? Do you know what you’re getting yourself into when cosigning a mortgage? Co-signing a mortgage is a big decision. Here are some important items you should know when thinking about cosigning a mortgage for your friends or family.
Although it’s nice to be in a position to help someone close to you qualify for a mortgage, It’s not a decision that should be made lightly. Co-signing on a mortgage could have a significant impact on your future. If you or your family member is a first-time home buyer get the facts on the importance of getting your pre-approval with a local mortgage broker.
Here are five things you should consider before co-signing a mortgage application.
1. You are 100% responsible for a mortgage you cosign
Regardless if you’re the principal borrower, co-borrower, or co-signor, 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-signor 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.
2. If mortgage payments are not being made you have to make them.
If the person who you’re co-signing for is unable to make the mortgage 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).
3. If the mortgage payments go into collections your credit is on the line.
If mortgage payments aren’t being made, there is a chance the lender will take legal action against you. This includes all available collection methods such as obtaining a judgment in court or garnisheeing your wage or bank accounts. Worst-case scenario, they could actually go after your property or assets in order to cover their losses. Now, this is highly unlikely, but not out of the realm of possibility.
4. You are not automatically removed from the mortgage documents after the first term.
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.
5. The mortgage debt, even when cosigned, is against your credit.
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.
If you are a first time home buyer in the Surrey & Langley area check out the options available for you in our first time home buyers guide.
If you have any questions about co-signing on a mortgage, or about the mortgage application process in general, we’d love to discuss it with you. Please don’t hesitate to contact us anytime! Our team specializes in mortgages in the Surrey and Langley area but can help you with information anywhere in the lower mainland.