You could call this article “Co-signing a Mortgage – A Tale of Two Signers” because this will address both the advantages of co-signing (if you are the borrower who needs more credit) and the dangers of co-signing (if you’re the person with the great credit history considering helping out someone with less credit available.) Hopefully this article will open eyes and minds to the pros and cons of co-signing on a mortgage.

Advantages of co-signing (for those who need more credit):

If you are either a relatively new borrower with limited credit (simply because you haven’t had enough credit cards and loans to establish a great credit record yet) or are a borrower with less than perfect credit, you may find yourself unable to qualify for a mortgage or offered an undesirable sub-prime loan with high interest rates.

Adding a co-signer (a parent, a significant other, a trusted friend) with an excellent credit record can help increase the size of loan you may qualify for. FHA loans allow you to consider all of a co-signer’s income when determining the size of the loan, even if the co-signer is not going to live at the home for which the mortgage is being issued. Non-FHA loans require the co-signer to cohabitate with the primary signer at the home for which the mortgage is being issued, and even then usually only half of the co-signer’s income is included when considering what size loan you will qualify for.

If you’ve co-signed already with someone and you find the mortgage is affecting your relationship with that person, consider consolidating the loan and getting a new loan to cover the consolidation – on your own. That new loan will pay off the old loan, releasing your generous friend or relative who helped you out in the first place.

Dangers of co-signing (for those who are considering helping someone with poor credit or little credit):

While co-signing on a loan may be a generous way to help out a child, parent, significant other or dear friend, you must consider the dangers before signing.

• Once you’ve co-signed on a loan, there are only two ways to be excused from responsibility of payments. Either the loan must be completely paid off, or the lender must agree to remove you from the mortgage. No lender is going to take you off the mortgage because the whole reason why they co-signed you was they were afraid the primary borrower would not be able to handle this size of a loan.

• Even if you get your name taken off the property deed, you are still responsible for the loan.

• If you co-sign for a mortgage, that debt counts as your own. When you go to get a mortgage of your own, that debt may disqualify you from taking on more debt, affecting your ability to buy a home or refinance or take on more credit.

• If the co-signer stops paying for the loan for any reason, you are completely responsible for the monthly payments. Mortgage companies are not tolerant of partial or late payments, and your credit rating could quickly plummet if you are not able to make the full payments on time every month.

While most people would agree that co-signing a mortgage is a risky and perhaps typically unwise decision, you get to make the choice in the end. Hopefully this primer helped you in your decision process.