Co-signing a mortgage loan advice sought

geepondy · Sep 20, 2006

Any lawyers, loan officers, mortgage brokers here? Ok, to shorten a long story, I've been asked if I would co-sign on a possible mortgage for someone that basically has no credit. Not bad credit, just not much credit. There is no way she will get a mortgage without a co-signer. I currently have a mortgage on the condo where I reside in which the purchase price approached my maximum qualified loan amount. The amount of mortgage that I have been asked to co-sign for would exceed my current mortgage by a great deal and I'm quite sure would be higher then I would qualify if I did not have a mortage and was looking to purchase myself. I have excellent credit but relatively speaking, not a lot of savings and could no way afford to pay the mortgage should the person I am co-signing for defaulted. I assume that in order to qualify as a co-signer, you would have to meet the guidelines if you were purchasing the house yourself and good credit is not enough? Is this correct. In other words if I verbally agreed to do so in order to save a relationship, is their a ghost of a chance the bank would approve me?

Also if the original purchaser can come up with a 20 percent down payment, would they get approved regardless of lack of credit?

Thanks for any insight.

Marty Weiner · Sep 20, 2006

Go to the Mortgage section on Creditboards.com There are tons of mortgage lenders/experts there.

In my humble opinion, never, ever co-sign for anything. Even for a relative or best friend.

flashfan · Sep 21, 2006

Totally agree with Marty Weiner, NEVER, EVER co-sign for a loan. It can end up wreaking havoc with your credit rating, not to mention your life. The one exception might be a parent co-signing for their child who is just starting out (and even that would be with great trepidation).

Sorry, I don't mean to sound harsh, but if you need to co-sign a large loan in order to save a relationship, there isn't much of a relationship (and all the more reason not to co-sign).

Dawg · Sep 21, 2006

When one feels desperate, they will often times do and say things that they would not normally. I understand, exactly the situation and what you really mean. You may have to go through the motions of trying to get the loan to preserve what you so desire. I sincerely doubt that any Mortgage lender would ever consider such an arraingement for much more than a few moments at best.

So by all means, make it look like you really want to rally to her aid and sleep easy that you will not be able to enter into any such financial agreement.

cy · Sep 21, 2006

No way should you commit financial suicide by co-signing a note. especially a long term mortage. which would the absolutely the worst thing you could possibly guarantee.

IMHO the person with no credit needs to built up their own credit. pretty simple to do.

start by getting 2-3 credit cards... no more. maintaining a zero balance looks good on your credit report. you should borrow just below limits of credit cards, then imediately pay it back.

purpose of this tactic establishes high credit limits and payment history. it will cost you some interest to do this.

you can do the same with secured credit loans. say you have $2,000 savings or what ever amount you have control of. go to your local bank and get a loan secured by your cash.

deposit funds and earn a little interest against the interest charged in loan. you will pay the difference in interest. but you will gain a solid payment history with a bank and hopefully a high credit limit.

you really need to leave note in place for 12+ months, but paying note off early looks great too.

this is a fail safe way to build up credit.... that's how I built up my own credit.

scott.cr · Sep 21, 2006

In addition to all of the above advice, which I think to be very sound, your friend should look for a mortgage broker that will deal with low FICOs. Anybody in the U.S. should be able to get a home loan, because lenders are so willing to provide the debt for a price.

Your friend has to be sure not to bite off more than she can chew as far as payments; the rule of thumb I've heard (on radio money management shows) is that your monthly housing payment should not exceed a third of your gross income. Seems high to me, but that's what "they" say.

This is when the need for proper money management comes into play too, such as when it comes to tax time, because home ownership presents a new set of tax rules. Since buying my place I've been paying a CPA $350 a year to do my annual income tax return and have NOT regretted it. (He'd be a bargain at $1,000!)

powernoodle · Sep 21, 2006

scott.cr said:
your friend should look for a mortgage broker that will deal with low FICOs.

Fine advice. Loans are available that aren't FICO-based, i.e., you don't have to have a credit rating. If you friend can't get one of those, he/she has no business being saddled with a mortgage, and you certainly don't want to be partnered with someone who lenders believe is unable to pay the note. The whole concept of co-signing is based on the lender's belief that the borrower is unlikely to repay the loan. And if a lender believes it, so should you.

peace

Diesel_Bomber · Sep 21, 2006

I feel ya, Geepondy. A few people have asked me to co-sign for them, too. Funny how you have a lot more (ahem)friends once it leaks out that you're debt-free. It can be difficult to turn down a truly good friend, but that is definitely the smart choice.

Good luck. :buddies:

TedTheLed · Sep 21, 2006

you could co-sign with no problems, just declare bankruptcy first.

Brighteyez · Sep 21, 2006

While others may have offered you advice, I only have one question.

Have you lost your mind?! [sorry, not sure of what emoticon to put here]

But I will join the ranks who chant "Just Say NO!"

geepondy said:
Any lawyers, loan officers, mortgage brokers here? Ok, to shorten a long story, I've been asked if I would co-sign on a possible mortgage for someone that basically has no credit. Not bad credit, just not much credit. There is no way she will get a mortgage without a co-signer. I currently have a mortgage on the condo where I reside in which the purchase price approached my maximum qualified loan amount. The amount of mortgage that I have been asked to co-sign for would exceed my current mortgage by a great deal and I'm quite sure would be higher then I would qualify if I did not have a mortage and was looking to purchase myself. I have excellent credit but relatively speaking, not a lot of savings and could no way afford to pay the mortgage should the person I am co-signing for defaulted. I assume that in order to qualify as a co-signer, you would have to meet the guidelines if you were purchasing the house yourself and good credit is not enough? Is this correct. In other words if I verbally agreed to do so in order to save a relationship, is their a ghost of a chance the bank would approve me?

Also if the original purchaser can come up with a 20 percent down payment, would they get approved regardless of lack of credit?

Thanks for any insight.

BIGIRON · Sep 21, 2006

I'm a licensed real estate broker and I say DON'T DO IT. Period.

All the foregoing is good advice. Almost anyone can get a mortgage if they find the right mtg broker.

twentysixtwo · Sep 21, 2006

What they said. The only exception I would ever consider is for a child who I deeply trusted.

cy · Sep 21, 2006

would especially not do it for a child..... you are doing no favors by doing so.

what should be done is to help establish/improve child's credit.
the phrase that comes to mind is: teach a man to fish....

and I've really learnt to fish better by benifitting from the collective intelligence of cpf!

twentysixtwo said:
What they said. The only exception I would ever consider is for a child who I deeply trusted.

twentysixtwo · Sep 21, 2006

Agree that it would be better not to, but hypothetically that would be the only exception I would make.

Brighteyez · Sep 21, 2006

Actually one might have to if they're a guardian for the child and the executor of an estate or trust FBO the child, though they would be signing on behalf of the estate or trust.

cy said:
would especially not do it for a child..... you are doing no favors by doing so.

chrwe · Sep 21, 2006

There's just one important thing here to consider: The bank wants a co-signer for a reason.

That reason is a pretty good chance the original client will not be able to pay back the debt. She will declare bankruptcy then. Then the bank will come after you. You will declare bankruptcy then. Don't even think there might be some sort of relationship left with your friend after that.

Basically what you do by co-signing is gambling with all your belongings on a not too good chance that she will not go broke. If you lose the gamble you lose all your belongings. If you thought that was bad news there will be a shock for you: the real bad news is that if you win the gamble, you win nothing.

OTOH, the relationship might not even break. After all you are still the guy with the cash. It will surely break once you are broke. Being broke isn't very attractive, you know...

geepondy · Sep 21, 2006

Thanks for the insightful advice and comments. No I'm not going to cosign. If it ends whatever shaky and fledging romance I have with her daughter then so be it. Without going into the personal details, it's a sad situation they, both of them good people, are in but I believe in time recoverable and I also think their are other options they can look at. I don't think it's such a bad idea to rent for a year and build up credit, especially the way the housing market is now here in the northeast. I would think that in a year, house prices may very well be lower still and probably at least not any higher.

I called the loan officer who did my mortgage today to see what would curtail should I agree. He said you most likely would not be cosigning as per say but more co-borrower. All of our assests and liabilities would be taken together. Actions in the future for both of us would affect each other's credit. Given the fact that I already have a pretty good mortgage for my income level, he doubts my half would bring much to the table. Maybe enough to squeak an approval if close but that would most likely be it.

Co-signing a mortgage loan advice sought

geepondy

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