Co-signing a loan is a generous act, but it comes with financial strings attached—especially if you plan to buy a home in the future. Before you put your name on the dotted line, it’s crucial to understand how co-signing can impact your ability to qualify for a mortgage down the road. Before You Co-Sign: Things to Consider
Co-signing and Its Impact On Mortgage: What Does It Mean to Co-Sign a Loan?
When you co-sign a loan, you’re agreeing to take on the responsibility for the debt if the primary borrower fails to make payments. Lenders see your name on the loan as a financial obligation, just like any other debt you personally take out.
Thinking about Co-Signing A Loan? Make Sure You Know All The Details!
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How Co-Signing Affects Your Mortgage Eligibility
If you apply for a mortgage while co-signed on another loan, lenders may have to factor that debt into your debt-to-income ratio (DTI)—even if you’re not making the payments yourself. This can reduce your borrowing power and potentially make it harder to qualify for a home loan.
A high DTI can signal to lenders that you have too much financial responsibility, increasing the risk that you may struggle with additional debt. If your ratio is too high, you may get denied for a mortgage or qualify for a lower loan amount than expected.
Can You Remove a Co-Signed Loan from Your DTI?
The good news is that lenders may exclude a satisfactory co-signed loan from your DTI if you can provide proof that the primary borrower has been making on-time payments for at least the most recent consecutive 12 months.
This proof may include:
Canceled checks
Bank statements
Payment history from the lender
If you can show that the borrower is solely responsible for the payments and that you haven’t had to step in, the lender may disregard the debt when assessing your mortgage application.
The Risk of Credit Damage
Even if you’re not making the payments, missed or late payments by the primary borrower will appear on your credit report. This can lower your credit score, making it harder to secure a mortgage or get favorable interest rates.
Before You Co-Sign: Things to Consider
If you’re thinking about co-signing, ask yourself:
✔️ Can the primary borrower afford the loan without my help?
✔️ Do I trust them to make consistent, on-time payments?
✔️ Am I planning to buy a home soon?
✔️ Do I have a backup plan if they default?
Co-signing isn’t just a favor—it’s a financial commitment. If homeownership is in your near future, weigh the risks carefully before taking on someone else’s debt.
Need Mortgage Guidance?
If you’re navigating a mortgage while dealing with co-signed loans, reach out to one of our licensed professionals to explore your options. A little planning now can save you major financial headaches later!
William McElhill is a Licensed Mortgage Professional of Shupe Lending Group NMLS ID# 2478065. Many of the borrowers of Shupe Lending Group are individuals who did not qualify at other lenders due to those lenders' overlays on government and conventional loans. We have a reputation of being able to work with over 270 different lenders to be able to offer out clients dozens of non-QM and alternative financing loan programs. Any non-QM mortgage loan program available in the market will be offered by our team at Shupe Lending Group. Our team is available 7 days a week, evenings, weekends, and holidays.
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