When someone asks you to co-sign for a loan, there are many things you should consider before putting your name on the dotted line. Co-signing for a KC home loan is serious business and something that should not be taken lightly. If you care about your finances, it’s important to understand what co-signing really means and how it affects you.
Co-Borrower vs. Co-Signer
Co-borrowers and co-signers can help others meet the standards for a KC home loan if they cannot qualify on their own. Generally, lenders will reject applicants if they have poor credit or do not have the ability to repay.
Co-Borrowers Are Co-Owners
Essentially, the biggest difference between a co-borrower and a co-signer is that the co-borrower is a co-owner. As a co-borrower or co-applicant, you share ownership of the property. In this scenario, the primary borrower and co-borrower are able to combine their income and assets in order to meet the lender’s borrowing criteria.
Co-Signers Are Only Financially Responsible
Unlike co-borrowers, co-signers may have to pay for the KC home loan but have no security interest in the property. They are not able to take possession of the property even if the borrower does not make monthly payments.
The Consequences of Co-Signing a KC Home Loan
Co-signing for a loan is not just validating the borrower’s ability to pay back the loan. If the borrower defaults, you are legally obligated to repay their debt, including the entire mortgage balance in the event of a mortgage default. In addition to having to pay their debt, you will be subject to the following:
- As soon as you become a co-signer, the debt will also show up on your credit reports. This can damage your score if the borrower misses a payment.
- Co-signing a loan can affect your ability to get financing because the co-signed loan will will be listed as one of your own loans. This also gets factored into your debt-to-income ratio if you apply for other financing.
- If the borrower becomes delinquent, the bank or creditor can select which debtor to pursue. The lender can come after you before exhausting other resources to get the money from the borrower.