When buying their first home, many people find themselves in the position of needing a co-signer in order to qualify for the mortgage they want. The common practice of requiring a co-signer on large loans does not say anything negative about you personally; it simply means that you are a good candidate for a mortgage, but your lender needs more assurance that they have a safety net in case a situation should arise where you are unable, for some reason, to make payments. Some things to consider that may make the difference between needing a co-signer or not include paying down debt, saving for a larger down payment or lowering your target price point. Once you have determined that these adjustments do not remove the need for a co-signer, it’s time to start looking for the right person.
Reasons you may be required to have a co-signer include: a slightly lower income level than is desirable, a credit score that is less than perfect or a credit history that is too short for the lender to accurately judge the level of risk involved in lending to you. Perhaps you already have a debt load that competes with the future mortgage payments the loan requires. Don’t be discouraged by these obstacles, they are not only common, but easily surmountable.The solution is simple: is there anyone on your life with a sound financial history who you trust and who trusts you enough to act as that safety net? If the answer is yes, then you are more than halfway to the finish line; however, it is important that both you and your co-signer understand what kind of arrangement you are entering into.
Most likely, a co-signer will be a family member or close friend- someone who knows you well enough to be confident in your ability to handle the payments on your home loan. More importantly, your cosigner must be made fully aware that the favour they are doing you comes with an immense amount of responsibility; in an instance where you are incapable of making payments, they will be required to do so. Therefore, verifying beforehand that your co-signer’s income must is high enough that they can cover their own personal expenses, plus the mortgage payments to your lender should you default, is paramount. This is very important because failure to make the payments under these circumstances can affect their credit score and financial security significantly. A co-signer is in fact entering into a legally binding agreement of the same gravity as you are, so it is not a decision that should be entered into lightly.
Chances are that you will be able to make the payments without incident and that things will go smoothly. Time will pass during which it becomes obvious to your lender that you are fully capable of handling the payment on your own. Perhaps you got a pay raise or paid off other debt. In this case, the process is easy: go to your bank and provide proof of your updated situation and they will walk you through the relatively easy process of having your co-signer removed.
Contact me for more information on your mortgage options and we’ll find something that best suits your needs.
