Categorized | Finance and Mortgage

Co-signing a loan: Should you do it?

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More stringent lending requirements and a less than stellar job market have made it difficult for first-time homebuyers to qualify for a home mortgage on their own. While finding a trusted friend or family member to co-sign may seem like a wise idea, many financial advisors and lenders suggest otherwise.

A co-signer is essentially defined as a co-borrower, and unless the co-borrower is on board with the possibility of having to make payments for the friend or family member for whom they are signing, co-signing may not be the best idea. If a family member or friend would like to assist in helping someone buy a house, there are a couple of safer alternatives to co-signing, such as giving money as gift to help with the down payment. In 2010, approximately 27 percent of first-time homebuyers received monetary gifts of up to $13,000 from loved ones toward down payments on a home.

When considering whether or not to co-sign a mortgage for a friend or family member, there are a number of things that a person should reflect upon. For instance, figure out the root of why the family member or friend is in need of your assistance. Conducting some serious due diligence and determining whether the person has a good track record in terms of paying back credit cards, other loans, etc. is necessary.

Instead of waiting for worst-case scenarios to happen, plan ahead. If the first-time homebuyer lost his or her job or was unable to make mortgage payments, you should have an idea as to what the alternatives would be. The best thing that a co-signer can do is work together to develop a written contract that would analyze and provide solutions for these potential scenarios.

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About Drew Wilson

Drew focuses on the Commercial and Mortgage/Finance categories.

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