Co-Signing Mortgage Loan

Refinancing and mortgage is on a slow but steady increase even in recession. Because of the lower interest rates in the real estate industry and in other form of loans, many property owners and those seeking to purchase a property are grabbing the opportunity to lower their debt or own a home without the debilitating interest rate.

This is also a way for lenders to dispose the property as soon as possible since the value of the property is going down fast. Before they could post further losses, the lenders are aggressive in selling the property the soonest time possible.

This situation might not have a direct affect for you if you already have a property with reasonable interest rate. But when someone approaches you to co-sign for the mortgage or other form of loans, you could find yourself involved in the current mortgage industry.

Your participation to co-sign a mortgage could be for your financial downfall if you are not aware of its consequences. Before you sign anything, be sure that you are familiar on what could happen to you when the worst case scenario happens.

Co-Sign Requirement

A co-sign is a form of document not required from every debtor. When a lender sees the credit rating of the applicant to be within the required range, the lender will continue with the transaction without asking for a co-sign. However, if they see that the credit rating of the applicant to be below the required score, they will only continue with the transaction if debtor would seek someone to co-sign their loan.

That means when someone asks you to co-sign their loan, they already have a bad credit rating. They might end up missing their monthly mortgage payments because their records have already shown that they might not be able to pay the bills on time.

Co-Signing Consequences

At first glance, co-signing may seemed like a simple transaction so that you can help someone obtain a mortgage on time. But it could lead to financial nightmare if you are not careful in co-signing for someone.

When the debtor misses a single payment in their mortgage, the second person (after the debtor) that will be contacted regarding the payment will be you as the co-signer. But you cannot just say to them “I do not know where he is” and get away with it.

As a co-signer it is your responsibility to ensure that the debtor has updated their payment. If the debtor is unable to pay, you will take responsibility for the payment. That means you are going to pay for the missed monthly mortgage bill – including the late payment fees and penalties.

If the debtor will run away from their monthly payment in mortgage, you will end up paying for the mortgage in their behalf. When you are also on a mortgage, you will end up paying for two mortgages with only one property.

Reducing Risks

When you co-sign, make sure that you reduce the risk as much as possible. Above everything else, make sure that the debtor would be able to pay for their monthly mortgage even though they already have a record in missing their payments. This might sound absurd but you can still see co-signed transactions especially when parents co-sign for their kids.

It is also important to have a signed agreement with the lender before you cosign. Although they will not agree to relieve you with all the financial duties, you can ask them that you will only be bound with the principal loan in case the debtor will miss the payment. This will greatly reduce your financial problems in case the debtor is unable to deal with the financial responsibility.