A co-signer is a person who agrees to guarantee a mortgage loan along with you (i.e. is obligated to pay back the mortgage loan to the lender) in the case of a payment default. A co-signer will not have his or her name on the deed of the house, and will have absolutely no ownership interest.
When a Co-signer can help you avail a Mortgage Loan in Boston
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A co-signer could help you obtain a loan from a lender in three major scenarios:
- Lack of Credit History: If you have never overextended your budget, and have always been thrifty with your finances, chances are there that you have no credit history. While this is inherently a positive point, when it comes to mortgage loans it is actually a negative. Lenders will require a credit history, because it will show them clearly if the applicant can be trusted with their money – i.e. a high credit score will show that even though the applicant has borrowed a few times, he or she has always paid back the loan on time. If your application in the Greater Boston Area was rejected for lack of credit history, a co-signer who has a high credit score can be the answer. In this scenario, the lender will consider the scores of the co-signer alone.
- Borrowing Limit: The amount the lender is willing to lend depends a lot on your total income, while you might have a great credit score, and have saved up for the initial down-payment, if you apply for a large loan with a smaller income, your chances of rejection are higher, since you may not be able to pay back the lender with your current income. The lender may not be willing to take the risk of lending such a large amount of money. In this scenario as well, having a co-signer with sufficient income, and only small amounts of debts and of liabilities will help.
- High Amounts of Financial Liabilities: If you already have a large number of liabilities in your name, in the form of student loans, car loans, legal fees etc., chances of your mortgage loan application being accepted are lower. While you might be paying all of them back on time, the lender will not want to take the risk of lending to you. Here also, a co-signer who has lower debts and sufficient income to pay back the loan could help you gain acceptance.
When a Co-Signer Cannot Help
- Bad Credit History: If you are using a co-signer, the lender will still take into account the lower of the two credit histories when making a decision on the loan. So, even if your co-signer has a very high score, if your scores are too low, the application will be rejected.
If your mortgage loan application in the Greater Boston Area has been rejected, find out the reason behind the rejection. Once you know the reason, you will know if a co-signer can help your cause. An understanding loan officer may be of help.