Co-Signing: What Should You Consider?

Co-signing for a loan is a large responsibility. When all options are considered and co-signing is set up correctly, it can be an excellent way to help a family member, child, or friend reach their dream of homeownership – But there are a few questions you need to ask yourself first.

Do you trust the person you are co-signing for?

If you act as a co-signor or guarantor, you are entrusting your entire credit history to the borrowers.

“What this means is that late payments on the loan will not only hurt them, but it will also impact you”

Do you understand how this may effect your situation?

Understand your current situation – taxes, legal and estate. Co-signing is a large obligation that could harm you financially if the primary borrowers cannot pay.

Do you know the timeframe of the co-sign agreement?

Try to understand, upfront, how many years the co-borrower agreement will be in place and understand what changes can be made mid-term if the borrower becomes unable to assume the original mortgage on their own.

Do you understand how your personal income tax will be effected?

Consider the implications this will have regarding your personal income taxes.

It’s wise to talk to an accountant prior to signing on the dotted line. You don’t want any surprise tax obligations.

Have you sought independent legal advice?

Co-signors should seek independent legal advice to ensure they fully understand their rights, obligations and the implications. A lawyer can lay it out clearly for you as well as help point out any things you should take note of.

Are you comfortable with the borrowers ability to repay the loan?

Carefully think about the character and stability of the people that you are being asked to co-sign for. Do you trust them? Are you aware of their financial situation to some degree? Are you willing to put yourself at risk potentially to take on their responsibility?

What are your financial plans?

Another consideration is to think about your finances down the road and determine how much flexibility will be needed for yourself and your family. If you have plans of your own that will require a loan or refinancing your home, being a co-signor can have an impact.

If you are considering being a co-signor or wondering if you will require a co-signor on your mortgage, reach out to a mortgage professional. I am always happy to guide clients through this process and am available to answer any questions that co-signors or borrowers have. Contact me to discuss your mortgage needs.