Buying a home is not always as easy as it sounds. One of the biggest problems people run into is being able to come up with enough money for a down payment and closing costs. This can be extremely discouraging because many homes ask for a 20% down payment. If you have neither the income nor the credit score for a good deal, you might be tempted to get a co-signer.
The Problems First-Time Home Buyers Often Experience
Many first-time homebuyers have a tough time getting a loan. When their credit is not that good or they don't make a lot of money, the standards may be set too high for them to get approved right away. You need to know what you are up against before you decide on your next step; get a pre-approval or a pre-qualification.
What is a Co-Signer?
A co-signer is a financial backup for a loan in which one person agrees to be responsible for the debt if the primary borrower were to default. In other words, an individual will sign with you on a mortgage and take on some of the responsibility of making payments on your behalf.
The Benefits of Getting a Co-Signer
Co-signing carries significantly less risk than being a primary borrower. If you have good credit, but not enough income to qualify for the loan size you are looking for, co-signing with someone who doesn't will allow you to get qualified much easier. Co-signers are helpful because they provide an opportunity for lenders to work around a person's income and credit issues.
The Downsides of Getting a Co-Signer
The main idea behind co-signing is that the individual who does not qualify for the loan will partner with someone who does. The problem with this arrangement is that both parties are equally responsible if the payments aren't made on time. This could be an issue if your income was to unexpectedly change or stop, forcing you to default on your mortgage.
Can Someone Co-Sign an FHA Loan for a First-Time Home Buyer?
Your co-signer will have to be someone closely related to you, such as a parent or a grandparent. They also cannot have their own FHA loan outstanding because every individual can only have a single co-signed loan out.
Your Next Steps
Whether you should get a co-signer is best discussed with your lender; they'll know the intricacies of your financial situation and whether a co-signer would even help. A co-signer can't mitigate your faults (such as a bad credit score), but can add to your loan with income.
It is also a good idea to learn more about first-time homebuyer programs.Share