Helping a family member buy and finance a home is a noble thing. For first time buyers, sometimes there just isnt enough qualifying income to buy a home where they want to live. In some areas, home prices are simply too expensive for many. Thats when buyers who are close to qualifying but need a little push can ask for a co-signer. If youve been asked and are considering it, there are some important things you need to know.
The first thing is knowing the buyers will pay the mortgage on time. For many who co-sign, they may not be aware of payment patterns. If the mortgage is paid on time or at minimum no payments made more than 30 days past the due date, all is well. But if a late payment is recorded, the late payment willnbsp; appear on the buyers credit report as well as the co-signers credit report. Before agreeing to co-sign, its a good idea to review an updated credit report of the buyers to see their credit histories. If the buyers have some spotty credit, it might be best to have them wait and repair their credit before going too much further.nbsp;
And because the payments will be on the co-signers credit report, that means the new mortgage payments, plus taxes and insurance, will also be reflected in the co-signers debt to income ratios. If your own debt ratios are already a bit on the high side, taking on new debt can also affect your ability to borrow in the future if need be. You might also expect to follow up with monthly payments should the buyers get into some sort of financial straits.
You will likely also be asked to provide your own financial information including documenting your income and employment. This means tax returns as well as bank statements showing your own credit history, income and employment. The new mortgage payment will directly affect your own debt ratios, so be aware in advance that your own ratios will increase and will also affect your ability to open up new lines of credit.
For many, its probably best to have the buyers wait to buy and finance a new home. That might not be what the buyers want to hear, but they also dont want to get in over their heads early on in their credit life.
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