The essence of a mortgage co-signer is that one person undertakes to pay the mortgage loan instead of the person for whom it vouches, if that person cannot fulfill its obligations. Often, when contacting a bank for mortgage lending, a potential borrower hears such a concept as a «co-signer”.
Helping the parents (or any family member or close to you person) qualify for a loan comes with risks. Before signing, a co-signer should understand what risks are agree to.
In this article we`ll discuss what a co-signer is, what risks may arise and how to act in such cases, and some important points.
Co-signing A Mortgage Loan: requirements and terms
Any individuals and entities can act as a co-signer for a mortgage. The co-signer must provide the bank with a package of documents that would confirm his solvency, he must be able to pay the same monthly amount as the borrower (Note: if the co-signer decides to issue a loan for himself in the future, then his bank – the lender will take into account the possibility of the client’s loan obligations, which can significantly affect the maximum loan amount that will be available to the co-signer). It should be noted that the co-signer cannot unilaterally refuse the co-signing.
Note: In some states, it is legal for the lender to try to collect from a co-signer before a borrower. This means you might be asked for payments before the person who actually borrowed the money.
As soon as the borrower is blacklisted due to non-payment of the mortgage, the credit history of the co-signer also begins to be considered bad. If the co-signer is unable to repay the loan instead of the borrower, then he bears property liability to the bank.
In many cases, the co-signer’s income is not taken into account when determining the amount of the loan and should only be sufficient to pay off possible debts when the borrower stops paying. That is, the co-signer’s income basically does not affect the final loan amount.
Mortgage loan co-signer`s rights
If the borrower’s obligations to the bank are fulfilled by the co-signer, then the creditor’s rights are transferred to him and he becomes the mortgagee of the borrower’s real estate. The co-signer must obtain the documents certifying his right to claim against the borrower from the bank. In the future, these documents are submitted to the court to collect the debt from the borrower. The main documents include a loan agreement, a co-signing agreement, a certificate from the bank on debt repayment, an assignment agreement, and payment documents.
To receive the funds spent on repayment of the mortgage, the co-signer applies to the borrower in writing, indicating the full amount of the debt (mortgage + interest + legal costs + fines + penalties). The written appeal must contain information on the terms and conditions of debt repayment, as well as a note that if the debt is not repaid, the co-signer will have to go to court.
If no response is received from the borrower, then the co-signer can sue. If the court’s decision is in favor of the co-signer (which is most likely), the co-signer turns to the bailiffs for help in recovering the borrower’s property from the borrower. And only after the sale of this property, the co-signer will return his money.
On the one hand it`s not an easy process to be a co-signer, as noted earlier, you need to consider all the risks, and co-sign only after you are finally confident in the borrower. And on the other hand it`s the most effective way to help your parents.
Imagine a situation for some reason (bad credit history etc.) one of your family member or relatives, friend asking you to cosign a mortgage. Think carefully! Take into account all upsides and downsides. Obviously, good side of cosigning, that you can help your loved ones, giving them opportunity to purchase a home and save interest with lower rate. However, evaluating cosigning a mortgage for close ones is usually not to do it. But if you do so, make sure that you accept and understand all consequences if something will go wrong.