Risky Business or Good Financial Sense: The Pros and Cons of Having a Cosigner on Your Mortgage Loan

If you don’t have a great credit score or not enough income to get the mortgage loan you need there is always the option of having a cosigner to help you get approved.

The idea of having a cosigner apply alongside you on a mortgage loan seems like a good one on the face of it but there are pros and cons attached to the option that you need to weigh up before signing the agreement.

Here is a look at what having a cosigner means and why lenders can look favorably on loan applications made in this way. There is also an overview of the pros and cons of cosigning plus a suggested potential compromise.

Understanding what a cosigner is

If you find that you are struggling to get a mortgage loan because your credit score is not as high as it could be or you have a fluctuating income that the lender doesn’t really like to see, it might be suggested to you that you might ask someone to stand as a cosigner for you.

Making a home loan application is a big financial commitment and you will have to satisfy the lender’s criteria to be granted a loan. One option to help you get the loan approved would be to use a cosigner, but what does this mean for you and the cosigner?

A cosigner is someone who agrees to apply for the loan with you and is therefore also agreeing to be responsible for paying off the debt if you don’t make the payments.

It can be easier to get a loan approved when there is a cosigner involved as there are then two people assuming responsibility for the loan.

Someone you trust

A cosigner arrangement clearly involves an element of trust on the part of both of you as you are agreeing to take up the slack if you are the cosigner, so you want to be sure that all parties are comfortable with covering for the other.

You can often see family members get involved in cosigning and it can certainly be a great way for parents to give their kids a start by offering to help them get a mortgage loan in this way.

Senior family members with some cash behind them and with a good credit rating can often make good candidates for a cosigner and provided everyone is comfortable with the situation it can work out to be a viable solution.

Not always a happy ending

There are pros and cons to a cosigner arrangement and this is a solution that definitely doesn’t come without risks attached.

The fact that you are sharing the financial responsibility and risk means that if there is a family feud or a relationship breakdown with the cosigner you will still find yourself in the firing line and responsible for paying the debt if anything goes wrong.

The usual situation is that cosigner has responsibilities but not that many rights, so everyone needs to be aware of this before committing to the arrangement in the first place.

It can, however, work as a temporary solution. You could ask someone to cosign on the understanding that you will agree to refinance and take on the loan yourself once you are in a position to do so.

Having a cosigner on your mortgage loan is a potential solution, just make sure everyone knows what they are getting into before going ahead.

Elise Dennis writes about mortgages. She hopes that her knowledge from working in the mortgage department of a bank will help people cut through the jargon to get to the facts of what is needed.

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