Do you ever wonder if you should cosign for a mortgage loan or not? Will it badly impact your credit score? How about your chance of getting new loan? It appears that the cosigning for a mortgage loan may have good or bad impact on your credit score. Here are some important thoughts to consider.
- If you cosign in a mortgage loan application to help a relative, you are making a commitment to the loan provider that you will pay if the loan grantee does not pay.
- Your loan amount will go up. This will increase your loan to credit ratio, an important element in the calculation of credit scores. A higher loan to credit ratio will lower credit score. This may prevent you from getting a loan or a better interest rate.
- If the loan grantee is delinquent in payment, it will have bad impact on your credit score.
- If the loan grantee stops payment on the mortgage loan, you will be responsible to pay the loan. If the loan is not paid, your credit score will suffer negatively.
- Cosigning for mortgage loan may also improve your credit score. Suppose, you cosign for a financially fit and responsible person. If this person pays the mortgage loan as agreed, this will build a good credit history for you. This will improve your credit report and credit score.
It is difficult to say no when a close relative asks you to cosign for mortgage loan. Here are some suggestions to consider before cosigning for a mortgage loan:
- Remember that mortgage loan may amount to a few hundred thousand dollars. Very few people have the ability to pay off this amount of money in case the loan grantee defaults. If you are unsure if the mortgage loan will be paid timely or not, you are taking a huge risk. Ask yourself if you will be able to monitor the mortgage loan payment, and make payment in case your relative needs help or cannot pay. If the answer is yes, you may cosign.
- Mortgage is a very high burden for average people in our society. Financial future is unknown for most of us. A responsible person with good financial health may face a bad situation for many reasons. You should take extra care before cosigning for a mortgage loan because it involves a lot of money. If you are in a financial situation that you can continue to pay for a default mortgage, it is OK to cosign. Be sure to monitor the mortgage loan payment and take appropriate action so that the loan is paid on time as agreed.
Cosigning for a mortgage loan will bring heavy burden of responsibilities to you. You must make sure that the mortgage loan is paid as agreed. If you can trust your relative on the loan payment and you have the ability to pay in case of default, you may cosign, otherwise, staying away from cosigning will be wise.