This is a very common question, especially with first time home buyers. A parent may wish to cosign on a mortgage loan if he or she wishes to provide help to their child to qualify to purchase a home. Many adult children may not have good credit or adequate experience with credit to obtain a mortgage on their own. By cosigning, a parent can help the child to get the loan he or she wants or needs. However, there are good and bad things about this process that you should know about.
How it works
When a parent cosigns on a mortgage for a child, the child and the parent partially own the home together. While the child may live in the home as a primary residence and be the primary person responsible for repayment of the loan, the lender can come after the parent as a way to get payment if the child stops making payments towards the loan. This can negatively affect both the child and the parent’s credit score.
The parent will need to go through the application process with the borrower and will sign legal documents with the lender at the time of the loan closing. As a result, the parent’s credit score and employment information is taken into consideration during the application process. In addition, the child’s information is also used.
Words of caution
It is possible that a parent cosigning on the loan can actually help the child to get the loan, but he or she still needs to be able to make monthly loan payments. It is often necessary then for borrowers to consider whether they can afford to make payments and if the loan is the right one for their long-term needs. If a parent does not want to make payments for the child, he or she needs to ensure that the child has the ability to make payments on his own.
Lenders may have special limitations or restrictions for borrowers who wish to apply in this manner. It is a good idea to ensure that you provide all information to the lender at the time of your application to ensure that the lender considers the borrower’s ability to have a cosigner on the account. When this happens, it could help the individual to qualify for a lower interest rate, better terms or just to get the loan when he or she may not have otherwise been able to do so. For the right situation, cosigning can be an ideal way to get the loan you want.