Careful when you co-sign

Dated: August 23 2020

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I’ve often seen family members lend a hand to help one of my clients buy a home by co-signing the mortgage application. This can be a good way to help an entire family get ahead. The person whose home it will be gets to buy earlier than they otherwise would, and the cosigner gets a boost to their credit rating over time, assuming that everything goes according to plan. There are, however, some risks involved that deserve careful consideration.

First, co-signing a loan involves serious consequences. It’s not just signing some papers—it means that you share responsibility for repaying the loan. If, for whatever reason, payments aren’t made on time, the lender will come looking for you, as well as the primary borrower, and your credit will be on the line. Even if payments are always on time, you will be hampered in your ability to get another loan yourself during the period of the co-signed loan. 

It's also a very good idea for families who are thinking of enlisting a co-signer to put together and sign a written agreement among themselves about who is entitled to what while the co-signing relationship still exists. If your agreement is verbal and not very explicit, you could discover major and very expensive disagreements further down the road. Before choosing to use, or become, a co-signer, it would be smart to talk through the implications with a good lawyer.

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DAVID DUNLAP

As a residential real estate executive with an extensive background in corporate marketing, I am able to apply unusually strong skills in marketing communications, e-marketing, strategic planning and ....

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