A home is often the largest purchase a person will ever make. Making that purchase often requires a person to take out a mortgage loan from a financial institution. Because the loan may be over $100,000, financial institutions require you to possess a good credit score and good credit history to mitigate the risk of a default. If your credit score is poor or you have a history of making late payments, you may need a co-signer who guarantees the financial institution that he will pick up the loan if you default.
Ask a family member or friend to co-sign a mortgage loan for you. A co-signer must have a good credit score and solid credit history. If the person has a poor credit score, a history of late payments or little to no credit history, she’s unlikely to help you get approved for the loan. Generally, a credit score of above 620 is considered good.
Explain to the family member or friend the obligations of co-signing. Make sure the person understands that by co-signing a mortgage loan, he guarantees that he will repay the loan, should you default. If he cannot repay the loan, the bank can attempt to recoup the money through legal means.
Assess the loan amount you can afford. Look at your debt-to-income ratio. Bankrate.com explains that your monthly mortgage payment should equal 28 percent or less of your gross monthly income. So, if you earn $4,000 per month, for example, the maximum mortgage payment you should aim for is $1,120.
Apply for a loan with the co-signer at the financial institution of your choice. Depending on your state and financial institution, the co-signer may be able to sign the loan and get it notarized, rather than joining you at the bank. Once the financial institution reviews your finances and your co-signer’s finances, you will receive a response about the loan.
- Federal Trade Commission: Co-Signing a Loan
- CreditScoring.com: What is a Good Credit Score?
- Bankrate.com: How Much House Can You Buy
- Consumer Financial Protection Bureau. "What Is a Debt-to-Income ratio? Why Is the 43% Debt-to-Income Ratio Important?" Accessed Aug. 26, 2020.
- Federal Trade Commission. "Co-Signing a Loan." Accessed Aug. 24, 2020.
- Wells Fargo. "Secured Loans and Lines of Credit." Accessed Aug. 24, 2020.
- SoFi. "Using Collateral on a Personal Loan." Accessed Aug. 24, 2020.
- First Alliance Credit Union. "The Basics for Needing a Cosigner on a Loan." Accessed Aug. 25, 2020.
Located in Pittsburgh, Chris Miksen has been writing instructional articles on a wide range of topics for online publications since 2007. He currently owns and operates a vending business. Miksen has written a variety of technical and business articles throughout his writing career. He studied journalism at the Community College of Allegheny County.