Tips On How to Co-sign Responsibly

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Many people who are homeowners today would not have been able to do it without a co-signer. Co-signing on a mortgage loan is one of the biggest favors you can do for your child, relative, or friend who is looking to buy a home. But co-signing on a mortgage puts a lot of risk on the table as well. Co-signers are responsible for making payments in a case where the primary fails to make payments. In many states, banks are legally allowed to collect from co-signers, even before they try to collect payment from the primary. 

By co-signing on a loan, you are risking your money, you are risking your credit, and you are risking your relationship.

Here in this post, we will discuss some tips on how you can co-sign responsibly so that you do not end up biting yourself in the leg.

Affordability

The first and most important thing before you co-sign is to double-check the primary borrower’s finances. Sit down and go through the plan on how he/she is planning to afford the mortgage payments. Make sure there is also some breathing space financially, just in case an emergency comes up. Banks check finances before approving a loan, so should you.

Request loan statements

Make sure you will receive statements in the mail. Banks do not send statements to the co-signer unless it’s requested. Make sure to ask to receive statements, so you can be properly on top of the loan, to make sure that payments are being made in a timely manner.

Escrow

Make sure the primary borrow gives you three-months’ worth of mortgage payments. The money should be put away in escrow to be used, just in case the primary borrower fails to make a payment. 

Refinance Commitment

Have the primary borrower commit to you, that as soon as he/she becomes mortgage eligible, they will immediately refinance the mortgage loan. And remove you from being a co-signer. 

If needed, say no

Remember that co-signing may be a good thing to do, but it’s not the right thing to do in every circumstance. If you’re not comfortable co-signing say no!. In the long run, saying yes may sometime be harder than saying no.


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Sam Sam has nearly a decade's worth of experience educating his many readers on everything credit. Sam spends his days checking out credit cards for a full report, from the minute benefit details to the shebang of welcome bonuses. Plus studying the ins and outs of building proper credit. It’s his favorite pastime and he loves sharing it with others.

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