Applying a mortgage with a cosigner can be very helpful for someone who is stepping into the housing market for the first time. It is similar to being a cosigner in your child’s credit card. On the other hand, it also means that you are agreeing to support the mortgage in case things go south. Here are some important factors to keep in mind if a mortgage is being signed with a cosigner.
Cosigning a mortgage application reflects responsibility. It means that you are sharing the responsibility of a mortgage and putting your credit score on the risk. To put it simply, if the applicant does not pay an installment, the lender has every right to collect the payment from you. In fact, your credit report will also show the late payment.
Since you are about to put your credit score on the line, the decision must be taken after serious thought tinkering. Ensure that you are partnering with a reliable person whom you trust.
Traditional Loan Requirements
In case of non-occupant co-borrower, it is not necessary for the cosigner to occupy the property. The credit score, however, will be attached with the mortgage application. The score is also used to calculate the applicant’s loan qualification. The DTI or debt-to-income ratio can alter a lot of loan applications. All the lenders do not have same policy and hence this can differ significantly.
Home Expense to Income Ratio
Home expense to income ratio also includes the cosigner’s debts and income. This figure represents the monthly insurance, taxes, interest and principal. The association dues of homeowner are also included here.
Cosigner in FHA Loans
Special restrictions are applicable to cosigner in FHA loans. At most, two applicants can be co-signer. All the cosigner must be USA residents. In case the property is already occupied, the maximum of 70% Debt to Income Ratio (DTI) is applicable and the down payment limit is around 20% of the equity. In case you want to put a higher down payment, the DTI limit is practically unlimited. Other important guidelines include:
When signing a mortgage application with someone else, you must take into consideration your own mortgage expenses. In case an installment is missed, you will just mess up your own mortgage payment for the month.
Maintaining Credit Score being a Cosigner
Always make sure you have the ability to pay up a missed mortgage payment. Being a cosigner, you have promised to share the burden with the other party in the application. So, manage your expenses to take out at least one month’s mortgage payment to maintain a safety net for your credit score.
If you foresee that the primary applicant isn’t going to fulfill his payments in the coming months, be ready with a legal team beforehand. Yes, you have agreed to always show up with mortgage, but a failed shared mortgage proposition can result in a foreclosure. And being a responsible cosigner, you should be prepared beforehand.
Revive Property Group