You’ve met with a mortgage broker or your bank, and they’ve come to the same conclusion—You need a cosigner to secure the best mortgage terms. Now for the hard part, finding the right person to help get you into a new home. There are several things to consider when choosing a cosigner. Here are a few tips to get you started.
Understanding the Co-Signer’s Role
Using a co-signer to secure your loan requires a lot of forethought. For the duration of the loan, you’ll have a second- or third-party involved in all your finances. The co-signer is responsible for your loan if you default, which is why they get to play a large role in all the decisions.
In return, you benefit from their excellent credit rating and qualifying income. Borrowers with this binding agreement have access to lower interest rates and better loan terms. You’ll also have more home choices when you pay less in interest and more for principle.
Who Qualifies as a Co-Signer
If you have low or bad credit, recently started a new job, or don’t have enough funds for a sizable down payment, a co-signer can be your answer to homeownership. It’s also a good option if you are self-employed and have varying income that disqualifies you from a traditional loan.
In most cases, a co-signer must have a family relationship with you. A qualifying individual should have a minimum credit rating of 600. For the best loan terms, shoot for a rating of 750 or higher.
The co-signer isn’t responsible for the mortgage payments unless you default. But they will still have to show they can cover your monthly amount along with their other responsibilities. It doesn’t have to be earned income. If you choose an older adult, such as a retired parent, they can consider retirement income and investments.
You Need a Good Relationship with a Co-Signer
When you’re considering a co-signer to secure a mortgage, your relationship with the person is the most significant consideration. He or she will see all your finances, income taxes, and spending habits during the loan process and throughout the mortgage’s duration.
It’s essential to have a good relationship with the co-signer. The debt will go on their credit report. Late payments and defaults hurt their financial situation, too. Additionally, for the duration of the mortgage, their credit lines are limited by your mortgage.
However, as your credit improves, you can refinance the home loan to remove the co-signer from the loan. Completing the process won’t harm their credit and can even improve it.
Congratulations! You’re ready to head back to the negotiating table and secure your home loan at the best possible rate. For questions or help to start the mortgage approval process, contact Altrua Financial today