Financial Risks a Mortgage Co-Signer Must Accept
June 3, 2019
Young adults with low incomes or poor credit histories may ask their parents to co-sign on their mortgage—and it’s a growing trend. The share of co-signed mortgages rose nationwide from 13.7% in 2015 to 17.4% in 2018, according to ATTOM Data Solutions.
But there are risks to being a co-signer. “Whoever is co-signing has to bring substantial income because they have to be able to afford the new payments on top of all of their other debt,” Eric Boutcher, senior loan officer with Atlantic Coast Mortgage in Fairfax, Va., told The Washington Post. “You’re adding up both borrowers’ debt, and you’re adding up both borrowers’ incomes. It’s all-encompassing.”
Also, it’s the co-signers who are taking on the brunt of the risk because they are responsible for the payments if the person they’re co-signing for can’t afford them. “There’s no separation of who’s responsible for the debt,” Boutcher says. “They’re both equally responsible.” Therefore, the co-signer’s credit and their ability to borrow on their own can then be impacted if the borrower misses a payment.
For those willing to take on the risk, co-signing offers a path to homeownership for some. One lender recalls a recent example of a college senior who wanted to snag a low interest rate and buy a home prior to graduation, according to the Post. By getting his parents to co-sign on the loan, he was able to qualify for a mortgage. “He was able to buy the house before he started the job,” Alex Jaffe, branch sales manager at First Home Mortgage in Chevy Chase, Md., told the Post.
Updated: June 20, 2019