There is an old saying that if you lend money to a friend or family member, you will likely lose the money or the relationship, or likely both! Co-signing is very much the same. It may seem like you are doing a “good thing” for someone by co-signing a loan for them, but be sure you go into it knowing all the facts. Keep in mind that lenders are not being mean or capricious when they won’t approve someone for a loan. They have made the decision that that borrower isn’t a good risk for them to lend money to for some reason, and that is what they do for a living. That should give you pause before YOU co-sign for them. Now, maybe you know something the lender doesn’t about the borrower’s situation. Maybe they just got out of college and have a high-paying job all lined up, but they don’t check the right boxes for the lender yet.
When you co-sign on a loan, that loan will show up on your credit report. This means if they miss a payment, it will show up on YOUR credit report as a missed payment, thereby bringing your credit score down. The worst part about this situation is that you may not even be aware that they have missed payments until it’s already happened, so your credit will have already been damaged. You may want to ask the borrower for proof that they are making the payments, but that means you’d have to check EVERY month, which is a hassle.
Even if they make all the payments on time, it will still be an obligation that you MAY have to pay if the borrower doesn’t. This means a lender will include that payment in your debt ratio when YOU go to apply for a loan. This may make it harder for you to qualify depending on your debt levels and income.
If you have questions about real estate, call me at (925) 240-MOVE (6683). Voted “Best of Brentwood” multiple times. To search the MLS for free, go to: www.SharpHomesOnline.com. Sharp Realty. #01245186
Brian Sharp