Co-signing on a home loan can be a big favor to a friend or family member, but is can also get you into trouble in the future. According to Realtor, accidents happen that individuals can't plan for. This means that you may compromise your own financial status in hopes of helping a friend or family member out with theirs. If the debtor fails to make payments on the loan that you co-signed, then you may end up with the brunt of the debt.
Normally, people will ask for a co-signer if they have poor credit and cannot apply for a loan on their own. The banks like co-signers, because it gives them a "second chance" to make up the money that they need after a debtor defaults on their loan.
Sometimes, people will ask for a co-signer because they have no credit at all. The bottom line is this: the lender doesn't trust the debtor's ability to pay the loan back. The Federal Trade Commission says that 75% of all co-signers end up having to repay the bulk of a loan.
Lenders understand that co-signers are shady in their borrowing practices. If your co-signer misses a payment, the lenders may come directly to you without even attempting to collect from the borrower. The lender has the right to ask for payment from a co-signer even if the borrower has not defaulted on the mortgage.
This means that you may have to cover your friend's late charges or legal fees. You may also have to disclose your assets and could possibly lose your own property. As a co-signer, you can also be sued. This can damage your credit and prevent you from getting your own loans in the future.
While co-signing on a loan may be risky, there are some situations which call for appropriate co-signing and are less of a risk. For example, many parents will co-sign on a loan with their children if the children have not yet established credit but have proven to be responsible. As a co-signer, you want to rest assured that you could pay back the money if the borrower defaulted on the loan. You want to make sure that you aren't jeopardizing your financial security and credit record.
Even if you believe that a borrower is responsible, remember that life is uncertain and people can become unemployed, chronically ill or die suddenly. This could leave you to shoulder the financial burden of the home. As long as you are certain you have the funds in your account to cover these costs, you can rest assured that you are not making a decision which could be devastating in the future.
Realtor suggests that all individuals in this situation work to protect themselves. You can request a document when you co-sign a loan that states that you would only have to pay the principal balance of a loan if the borrower defaults. This will help you avoid paying attorney's fees if the lender wants to sue for the money.
It is a great idea to ask the lender to tell you in writing when the debtor is behind on a payment. This can help you to prevent a possible default situation from completely snowballing. You can keep copies of all paperwork and should make sure that you understand the type of loan that you are signing for.
If you are considering signing, you may want to speak with a professional and trusted real estate attorney first. With the right legal advisor, you can make sure that you are making a wise choice in your case and that you won't regret the decision to co-sign or not to co-sign. Use this directory to locate a trusted real estate attorney near you today!