Co-signing a loan for a friend or family member might seem like a generous gesture, but it can have significant implications on your financial future—especially when it comes to getting a mortgage. At Great Move Realty, we understand the complexities of real estate and financial decisions, which is why we’ve teamed up with Bob Willis from Credit Repair Resources to shed light on this critical topic.

What Happens When You Co-Sign a Loan?

When you co-sign a loan, you’re essentially agreeing to take on the responsibility of repaying the loan if the primary borrower fails to do so. This means that the loan will appear on your credit report, and it will affect your debt-to-income (DTI) ratio—a key factor lenders consider when approving mortgages.

The Impact on Your Debt-to-Income Ratio

Your DTI ratio is calculated by dividing your total monthly debt payments by your gross monthly income. Lenders use this ratio to determine your ability to manage monthly payments and repay borrowed money. When you co-sign a loan, the monthly payment for that loan is included in your DTI ratio, even if you’re not the one making the payments. This can make your DTI ratio higher than it would be otherwise, potentially making it harder to qualify for a mortgage.

Potential Credit Score Implications

Your credit score is another crucial factor in mortgage approval. Co-signing a loan could impact your credit score in several ways. If the primary borrower makes late payments or defaults on the loan, it will reflect negatively on your credit report. Even if payments are made on time, the increased debt from co-signing could lower your credit score by increasing your credit utilization ratio, which is the amount of debt you have compared to your available credit.

How Lenders View Co-Signing

Lenders take co-signed loans into serious consideration when evaluating mortgage applications. They’ll view the co-signed loan as a financial obligation of yours, which could make you a higher risk borrower in their eyes. This might lead to higher interest rates or, in some cases, denial of your mortgage application.

What Should You Do?

If you’re considering co-signing a loan, it’s essential to think carefully about the potential long-term impact on your financial situation. Before making a decision, consider whether you can afford to take on the responsibility of the loan if the primary borrower defaults. Additionally, if you’re planning to buy a home in the near future, it might be wise to avoid co-signing until after your mortgage is secured.

Expert Advice from Great Move Realty

At Great Move Realty, we’re here to guide you through every step of your real estate journey. If you’ve already co-signed a loan and are concerned about how it might affect your ability to get a mortgage, we encourage you to watch our video featuring Mike Love and Bob Willis. They offer valuable insights on navigating this complex situation and protecting your financial future.

For more personalized advice or to discuss your real estate needs, don’t hesitate to contact us. We’re committed to helping you make informed decisions that align with your goals.

If you’re looking to buy or sell a home, or if you have questions about how co-signing might impact your mortgage prospects, reach out to our team at Great Move Realty. We’re here to make your home our priority.