The Pros And Cons Of Using A Cosigner For Your First Home Loan
Many first time homebuyers consider using a cosigner to help them get into a house. Cosigning might be the best option for you, but there are some things that you need to know about cosigning. Here are some advantages and disadvantages of using a cosigner.
Advantages Of A Cosigner
Can Help With Credit
One of the biggest reasons someone uses a cosigner for first time home loans is that they don't have good enough credit to qualify for the loan on their own. Instead, they choose a friend or family member who has good credit, and/or a substantial income, to cosign with them.
When you do this it will help the lender to approve you even if your income and credit aren't great. This is because they will use the co-signer as a backup for the loan if you default.
Can Help You Get Into A House Faster
Another advantage to having a cosigner is that it will help you get into the house you want faster. If you are self-employed, or are unable to prove good income, you might have to wait a couple years before the banks will consider you for a loan.
However, with a cosigner you could get into the house that you want in shorter amount of time. This is because they will be more lenient on your income if they have someone else to use as collateral.
Disadvantages Of A Cosigner
High Risk, Little Reward
There are many more disadvantages for the person cosigning on the loan, compared to the primary borrower. For instance, the cosigner is taking a big risk, but has little reward for it. They don't get to live in the house, it won't necessarily improve their credit, but it could destroy their credit if the primary borrower doesn't make their payments.
If you, the primary borrower, default on the loan, the cosigner is responsible for it. They have very little control over you paying the bills, but if you aren't able to make payments, they are held responsible for something that they couldn't even control in the first place.
Potentially Damage The Relationship
Another thing to consider when using a cosigner is that it could potentially damage your relationship with them. If you aren't able to make the payments for some reason, you could ruin your friendship. They could, and most likely will, hold you responsible for the fact that they are also in financial ruin since you couldn't pay your bills.
When considering a cosigner it is important that you look at both the advantages and disadvantages so you know what is the right step for you.