Risks of Co-Signing Vs. Co-Borrowing
Not everyone can be approved for a home loan on their own. Whether it’s due to poor credit, a high debt-to-income (DTI) ratio or a foreclosure/short sale, a co-signer or co-borrower may help the borrower qualify for a mortgage. While many people think that co-signers and co-borrowers are the same, they are very different when securing a mortgage. Both can help a potential borrower qualify but they have different responsibilities and risks attached to them.
A co-signer assumes the liability for a debt if the primary borrower defaults on the mortgage loan. Co-signer’s income, assets, liability and credit history help in determining loan approval. Co-signers do not hold ownership interest in a property, but are liable for repaying the obligation and must sign all documents with the exception of the security instruments.
Co-borrowers have ownership in the property. They must sign loan documents and assume responsibility to pay the loan. Co-borrower’s income, assets, liability and credit history help in determining loan approval. Often co-borrowers are spouses who want a larger loan than either could qualify for separately.
The risks of being a co-signer or co-borrower are high. They are both responsible for repayment of the loan. Creditors report positive information to credit bureaus for co-borrowers only. Unfortunately, lenders can report negative information to credit bureaus for both. If co-borrowers declare bankruptcy together, it may deter the lender from collection activity; joint bankruptcy does not provide any protection to a loan’s co-signer.
If you would like more information on the various mortgage products available to help your homebuyers purchase the home of their dreams, contact a PRM mortgage banker today!
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