Are you thinking about co-signing a loan? Co-signing a loan can be an incredible present for a family member or even dear friend, but it isn't something that should be entered into lightly. When it comes to home loans, you'll likely be on the loan for the next 30 years. Here's what you need to know.
Co-Signers Aren't Always On The Deed — But They Should Be
Being a co-signer to a loan and being on the deed are two entirely different things. It's very possible that you could be a co-signer on the loan (be responsible for payments) and not be on the deed (have any right to the property). This is very dangerous because you have no control over the property but you'll still need to make sure that the loan is paid every month throughout the term of the loan.
Co-Signers Are Just as Responsible for the Loan
Which brings us to another point: a co-signer is just as responsible as the borrower is for the loan. If the property slips into foreclosure, the co-signer will be on the hook for any differences owed to the bank. The co-signer will ultimately be responsible for paying the bank every month, even though they may not actually hold any equity in the home themselves. And if the co-signer isn't on the deed, they have no control, including the ability to sell the property.
Co-Signers Will Suffer the Same Consequences for a Defaulted Loan
In addition to being responsible for loan payments, co-signers are going to suffer the same consequences as the borrower if the loan isn't paid. Every time the borrower is late, the co-signer's credit score will go down. If the borrower is foreclosed on, then the co-signer is being foreclosed on. This gives the co-signer a vested interest in ensuring that all the payments are made every single month for the property.
Being a co-signer is actually a very dangerous financial prospect, but that doesn't mean that it isn't occasionally the right tool to use. If you trust a borrower and want to help them, then co-signing may be exactly what they need to get their loan approved and get into the home that they desire. However, you do need to consider that their financial situation could change at any time, and that the next thirty years is a very long duration. Being on the deed is almost always the right answer. For more information, contact local professionals like FCN Bank.Share