Not long ago a guy called me about a mortgage to purchase a home. He was a very nice guy to chat with, but it soon became evident that his "niceness" had created some problems for him. He had really great credit at one time, but he recently made an error that completely messed it up.
So what exactly was his error? Well, he cosigned a car loan for somebody. And incredibly, this somebody didn't turn out to be his son, wife, daughter, or mother - it was his coworker. Wow! I'm pretty uncomfortable with the idea of cosigning anyway, but it would never occur to me to cosign for somebody I merely worked with.
Unfortunately, and predictably, the coworker stopped paying on the car and the lender ended up taking it back. Now the well-meaning man had a major blemish on his credit, badly damaged credit scores, and wasn't able to qualify for a loan to buy the house he wanted.
Be Wary of Putting Your Credit In Somebody's Hands
Folks, when you cosign, you're putting your credit rating into the hands of somebody else. You're also legally obligated on the debt, so if the person you cosigned for stops making payments, the bank will come after you as well. And if your credit ends up in bad shape as a result, it could limit your ability to get a great loan and end up costing you a lot of money.
I once chatted with a father who cosigned for his daughter and ended up with really screwed up credit when she didn't make her payments. His good intentions essentially ended up locking him into a high interest mortgage because he couldn't qualify for a refinance. His daughter's inability to maintain her obligations ended up costing him a lot of money.
Even if cosigning works out well and the payments are always made on time, it can still cause some headaches when you want to qualify for a mortgage. Lenders will insist on including all cosigned payments in your debt-to-income ratio unless you can show with cancelled checks that the other person has made the payments for the last twelve months. If it's not possible to document that, and your debt-to-income ratio is too high, you won't be approved for the loan.
Think Carefully Before Cosigning
I would advise thinking very carefully before you put your credit into the hands of somebody else by cosigning. Credit blemishes can hang with you for a very long time and make it very hard to get a loan when you want one. And even if you can get qualified, you could end up paying a much higher rate that could cost you for many years to come.
So what exactly was his error? Well, he cosigned a car loan for somebody. And incredibly, this somebody didn't turn out to be his son, wife, daughter, or mother - it was his coworker. Wow! I'm pretty uncomfortable with the idea of cosigning anyway, but it would never occur to me to cosign for somebody I merely worked with.
Unfortunately, and predictably, the coworker stopped paying on the car and the lender ended up taking it back. Now the well-meaning man had a major blemish on his credit, badly damaged credit scores, and wasn't able to qualify for a loan to buy the house he wanted.
Be Wary of Putting Your Credit In Somebody's Hands
Folks, when you cosign, you're putting your credit rating into the hands of somebody else. You're also legally obligated on the debt, so if the person you cosigned for stops making payments, the bank will come after you as well. And if your credit ends up in bad shape as a result, it could limit your ability to get a great loan and end up costing you a lot of money.
I once chatted with a father who cosigned for his daughter and ended up with really screwed up credit when she didn't make her payments. His good intentions essentially ended up locking him into a high interest mortgage because he couldn't qualify for a refinance. His daughter's inability to maintain her obligations ended up costing him a lot of money.
Even if cosigning works out well and the payments are always made on time, it can still cause some headaches when you want to qualify for a mortgage. Lenders will insist on including all cosigned payments in your debt-to-income ratio unless you can show with cancelled checks that the other person has made the payments for the last twelve months. If it's not possible to document that, and your debt-to-income ratio is too high, you won't be approved for the loan.
Think Carefully Before Cosigning
I would advise thinking very carefully before you put your credit into the hands of somebody else by cosigning. Credit blemishes can hang with you for a very long time and make it very hard to get a loan when you want one. And even if you can get qualified, you could end up paying a much higher rate that could cost you for many years to come.
About the Author:
What is a good credit score when you're qualifying for a mortgage? Find out what is considered good credit here.
No comments:
Post a Comment