Real Estate Tip of the Week: Understanding Co-Signing

With the majority of homebuyers coming from the millennial generation, they might be receiving a little help from parents or guardians to help them lock down their first home.

Because, you know, student debt might be one of the major hindrances for them.

But if a jointly held mortgage is the answer for your client to secure their dream home, it’s important that you be as clear and direct as possible as to what co-signing entails.

If your client asks you about co-signing, it’s important that you encourage them to speak to a lender or a financial planning professional before taking any action. Then feel free to share the following information with them:

Responsibility

As a co-signer, you are 100% responsible for the obligation. If for any reason the owner cannot make their mortgage payments, you will now be considered responsible for the payments.

Credit Score

Any delinquency will appear on the co-signers credit report.

Future Loans

The co-signed loan takes up part of your debt-to-income ratio and restricts your ability to borrow additional money in the future. If you have upcoming purchases – like a car – you might want to talk with your lender beforehand.

Remember, as a real estate agent, you should clarify that it remains the responsibility of the homebuyer and the co-signer to discuss this option with a lender or professional financial planner to understand fully the pros and cons of taking this route.