From an underwriting perspective, cosigning for a loan in the mortgage process is a bad idea. It can not only affect your credit score, but it can also hurt your purchasing power as a homebuyer.
Say you’re cosigning for a car loan for a $6,000 car that has a $150 payment. To get the car loan, your credit has to be pulled, and that can affect your credit score. That $150 payment also has to be counted against you in your debt-to-income ratio, which can impact what you can qualify for.
Even if the other cosigner will be making that payment, there is no way that payment can be excluded until they’ve consistently and consecutively made 12 months’ worth of payments to the lien holder. You’re stuck with that payment for at least 12 months.
Additionally, if that person misses one of their payments or they’re 30 days late on one of them, that would also show up on your credit report and potentially affect your qualification status. There are some loan programs out there that don’t allow you to have any 30-day late payments in the last 12 months.
From a mortgage standpoint, there really is no difference between a cosigner and a co-borrower. Lenders look at what’s on your credit report, and it doesn’t matter whether you cosigned or co-borrowed—the account will more than likely show up on your credit report, and they’ll see the payment.
The total amount of the cosigned loan doesn’t detract from your mortgage eligibility because it’s the monthly payment that lenders calculate into your debt-to-income ratio. It doesn’t matter if it’s a $10,000 loan or a $200,000 loan; it’s the monthly payment that we care about. Keep in mind that every $50 in a monthly payment equals $10,000 in a purchase price.
If you have any more questions about this or any topic related to the mortgage loan process, don’t hesitate to give me a call or shoot me an email. I’d be glad to help you.