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A mortgage cosigner is a person that is willing to put their credit rating on the line, for the benefit of another. As noble a gesture as this may be, there are a few serious concerns that the cosigner should observe prior to accepting the responsibility.
Cosigner as Loan Guarantor
It should be noted upfront, despite anything else that you may have read to the contrary, a cosigner is equally responsible for the repayment of the loan. Whether cosigning for a friend, relative or other individual, when you put your name on the paper alongside the borrower you have indicated to the lender that you are responsible. If the loan goes into a default status due to non-payment, you will be equally responsible for repayment of the loan agreement.
Understanding the Principal Borrower’s Credit
The lower the credit score that the person has may be indicative of other problems going on with that person. You should be extremely cautious of agreeing to cosign any loan where the other person’s credit rating is within 150 percent of the bottom of the rating scale. This means that the person is more likely to default on some of their loan, leaving you holding the bag.
Credit Counseling Programs
You should be knowledgeable about the different types of credit counseling and other programs available to assist a prospective borrower. In many cases, these programs can help an individual address any severe credit delinquencies and eliminate erroneous items on the credit report that are the cause of the bad credit rating.
This may make a huge difference when considering whether or not to become a cosigner. The person that is willing to take the proactive steps necessary to address their problems is less likely to default on their loan.
The Loan Agreement
The loan agreement represents the legal arrangement between the lender and the borrower. Since a cosigner is a party to the loan agreement, it is in their best interest to understand the terms and conditions of the agreement. Their signature represents a promise to step in and pay in the event that the primary borrower is unable or unwilling to meet their responsibility.
Impact on Cosigner’s Credit Rating
A cosigner should be aware of how their signature on the loan agreement will affect their personal credit rating. If the borrower skips a payment, or is late, this will result in a negative mark on the credit report of the cosigner. Knowing this beforehand may influence a person’s decision to agree to cosign a loan.
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