Advantages & Disadvantages of a Cosigner

by Steve Lander

If you can't get a loan, you might be tempted to look for a cosigner. On the other hand, if someone you care about is having trouble securing a mortgage, cosigning for him might be the only way he can qualify. The impacts on you differ depending on the role you find yourself in.

Cosigning Benefits

The primary advantage of being a cosigner is that you get to use the good credit or ample income you've built up to help someone. Cosigning for her loan helps her achieve the goal of home ownership. If she makes on-time payments every month, you'll also have the benefit of having a successfully paid account on your credit report, which can improve your score further as long as you don't have too much debt.

Cosigning Drawbacks

When you're a cosigner, you have the disadvantage of being in debt without the benefits that having your own mortgage brings you. You typically don't get to live in the house and if you just cosign, you don't get to deduct any of the payments. If the borrower doesn't make her payments, you'll be responsible to make them or risk having your credit ruined. In addition, the loan will count against your ability to borrow if you need to financing yourself.

Getting a Cosigner

If you can't quality for a mortgage, a cosigner may be your only option. When someone cosigns on the loan with you, the lender looks at your incomes and your credit scores together. The backing from someone with good credit may be enough to get you qualified. It's especially helpful if your income isn't high enough to let you take out a loan on your desired home. Bear in mind that getting a cosigner won't give you more income every month to make your payments unless you make such an arrangement with that cosigner. If your cosigner is just there to help you get qualified for the loan, you'll still need be sure you can make the payments on your actual income.

Problems with Cosigners

Having a cosigner is an awesome responsibility. Every month, two people's financial future depend on you making your payment -- yours and your cosigner's. The stress of this obligation could affect your relationship with your cosigner outside of the loan, even if things go well. If you don't make your payments, you could end up losing the relationship completely. When you bring a cosigner into your loan, you bring her credit file into consideration. Because your lender may consider the lowest credit score in an application, if your cosigner's credit is inferior to yours, it could harm your ability to get your loan or increase your interest rate.

About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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