The Disadvantages of Having a Cosigner on Your Home Mortgage
A cosigner may be necessary for certain first-time homebuyers or people with no or bad credit histories. Having a cosigner allows the borrower the opportunity to buy the home and over time, improve their credit history. Home ownership improves a person’s financial situation by providing equity and is preferable over renting. Having a cosigner may be a boon for the borrower but there are ways in which a cosigner relationship can be threatened.
Shared Responsibility for the Loan
When a person agrees to cosign a loan for another borrower they share in the responsibility for that debt. For a home loan, this responsibility can be large. Depending on the nature of the relationship between the borrower and the cosigner, the extent to which the borrower is irresponsible can threaten the credit rating of the cosigner. Many times what can be a positive, Good Samaritan situation for the cosigner can turn into a very bad financial situation.
Cosigner Is on the Hook
The cosigner is on the hook for the liability in the event that the borrower defaults on the home loan. The cosigner may not always be fully aware of all of the terms and conditions of the loan and be left with some unmet liability that they were not made fully aware of. A borrower who decides that the mortgage payments are too much for them may decide to abandon the home, leaving the cosigner with the burden of making the payments in the borrower’s absence. This may also force the cosigner to enter into a foreclosure proceeding that ultimately affects their credit rating.
Not Aware of Adverse Payment Situations
A cosigner may not always be aware of the payment status of the home mortgage. Since the cosigner often times does not live in the home or with the borrower, late notices and other warnings may go unheeded by the borrower. Finding out that the borrower is on serious arrears for the home mortgage may be too late for a cosigner who may have been able to step in and ensure that timely payments were being made.
Strains on a Prior Relationship
A borrower – cosigner relationship can place strains on friendships or family ties. Any late payments or misunderstandings with regards to the nature of the financial arrangement can lead to hurt feelings and irreparable harm to a relationship. When a considering cosigning for a loan care should be taken to determine what the net effect of this arrangement may be.