When a friend or family member prepares to purchase property, they might ask you to cosign. While cosigning is common, it has a few limitations to know before adding your signature to a document. What rights does a cosigner have on a house?
As a trusted mortgage broker in Houston, Texas, Champions Mortgage offers advice and outlines your rights and limits as a potential cosigner. Read below to understand more about your role as a cosigner.
What Is a Cosigner’s Role?
When lenders consider loan applications, they examine the applicant’s financial history before granting a loan. Income, credit score, repayment history, and other influences factor into the equation of overall mortgage qualification. If the applicant falls short in these qualifications, they can add a cosigner to the agreement to increase their odds of acquiring the loan.
As a cosigner, you’ll meet the lender’s qualifications. Your signature means you accept financial responsibility over the remaining loan amount if the borrowers fail to do so. Most people ask close relatives or friends to act as cosigners when preparing to purchase property.
Cosigner vs. Co-borrower
If you’re wondering, “What rights does a cosigner have on a house?” you may be unclear on the differences between cosigning and co-borrowing. However, the two roles have distinct responsibilities and rights. A cosigner’s sole responsibility is ensuring a complete loan repayment. A co-borrower ensures repayment but also helps pay the loan alongside the borrower and possesses property ownership rights.
As a cosigner, you don’t have property rights. However, you also forgo monthly payment responsibilities.
When Are Cosigners Necessary?
Homeownership is an integral part of the American dream. However, mounting limitations and requirements make it difficult to obtain. A potential homeowner might use a cosigner to make the milestone more attainable.
Your friend or relative might request you to cosign for them under the following circumstances:
- Youth: A young person might have enough resources to make monthly loan payments. However, their lack of financial history might limit their lender options without a cosigner.
- Self-employment: Self-employed individuals might have gainful, consistent income that their tax statements don’t reflect. Therefore, a cosigner can help them enter homeownership with fewer hitches.
- Unemployment: An unemployed individual might have the resources to purchase a home or pay their loan despite their current employment history. They may attend school or care for loved ones and need assistance.
- Divorce: The courts may award a shared property to one party when a couple divorces. The party might need a cosigner to take property ownership into their hands.
- Lack of current resources: Sometimes, a person with a promising future and some financial resources can afford a basic loan. However, they might have subpar credit or other issues preventing them from home ownership.
You now understand why your loved one might need your help, but what rights does a cosigner have on a house after adding their signature to a loan agreement?
The Risks of Being a Cosigner
Understanding how your role as a cosigner could financially impact you. What happens if the borrower can’t manage their loan payments? How do these circumstances burden you?
- Foreclosure consequences: You must pay back the loan amount without the perks of homeownership.
- Credit impact: Your credit score will take a nosedive if the borrower fails to hold up their end of the deal. Therefore, you might struggle to obtain other loans until your score recovers.
- Regular income: If the payment amount exceeds your income, it’ll heighten your debt-to-income ratio. Your overall financial resources will suffer.
- Relationship stress: Your relationship with the borrower may deteriorate if they fail to make loan payments and must foreclose on their property.
The Advantages of Being a Cosigner
While cosigning can have far-reaching consequences, it also offers some worthy advantages. Cosigning has the following benefits:
- Growing familial or community wealth: Don’t underestimate the positive impacts that homeownership can have on community and family wealth! Owning property helps your network enjoy more control and have increased assets.
- Assisting loved ones with significant milestones: Sometimes, the altruism toward someone you love offers more gratification than any other act.
- Helping those closest to you achieve stability: Property ownership helps young couples and growing families remain stable. You’ll set your adult children or young relatives up for success, which benefits their children, too.
What Rights Does a Cosigner Have?
After weighing the pros and cons of a consignor’s role, you should know your rights should you cosign for your friends or family members. What can you access? What’s off-limits?
- No attached assets: As a cosigner, you can’t access the loan amount or the covered property. You have no control over these elements if the borrower fails to pay.
- Collections consequences: Debt collectors may call or visit you before the borrower. This occurs because cosigning means you agree to take responsibility for the loan if the borrower defaults. Once they default, the loan becomes your responsibility.
- Signature removal: Your cosignership may not last till the borrower pays the loan in full. Some lenders allow borrowers to remove cosigners once they pay a pre-specified number of consecutive payments on time.
What Is a Cosigner Responsible For?
Agreeing to cosign for a property adds a few responsibilities to your financial to-do list, including the following:
- Only apply and sign if you’re prepared to take on the loan. Don’t agree to loans you can’t manage. Talk with the borrower about setting achievable loan parameters for themselves and you.
- Submit your own application. Next, you’ll prepare a cosigner application. This application requires similar evidence of your financial history and current finances as the borrower.
- Track your credit score and stay updated about the borrower’s payments. Check your credit score regularly for drops. You should speak with the borrower about their loan payments if you notice a drop.
Choose Champions Mortgage as Your Houston Mortgage Broker
What rights does a cosigner have on a house? As a cosigner, you won’t have rights to the property as an asset. However, you can protect yourself while assisting relatives and friends.
Learn more about self-employed home loans, joint mortgages, and other mortgage tools from Champions Mortgage. Call (281) 727-2500 to learn more.
