When an adult child is ready to become a homeowner, they may not have enough credit to secure a loan. Typically, lenders want borrowers that have extensive credit histories that show timely payments and higher credit scores. If the applicant doesn’t qualify because of a lack of credit, they can get a parent to co-sign for the mortgage.
Evaluating Their Credit Histories
When considering co-signing for a mortgage, it is wise for the parent and their adult son or daughter to review their credit histories. They should start by eliminating any listings that are outdated or invalid.
By filing a report with the credit bureaus, the consumers can improve their credit ratings by removing items that do not belong to them or are at least seven years old. Any account that has been closed or charged off must be removed if it has been on the report for at least seven years.
Improving Their Credit Rating
Both the parent and their adult son or daughter should follow steps for improving their credit ratings. They start by paying off any debts that are charged off or closed. Next, they should pay off any smaller debts to decrease their debt-to-income ratio. This can help them improve their credit scores and qualify for a better mortgage. The purpose for getting a co-signer is access to better mortgages and getting financing for their new home.
Getting a Preapproval for Both Parties
By getting a preapproval for both parties, the co-signer and the borrower determine how much money they can get to purchase a home. The lender will require qualifications for both parties and calculate the highest mortgage amount. Lenders require a co-signing when the applicant doesn’t have enough credit to get a loan on their own. Borrowers can get more information by contacting a lender now.
Searching for a Home
After they get a preapproval, the borrower and co-sign start the home search with a real estate agent. The preapproval helps the real estate agent find a property that is within the buyer’s budget without wasting time. They have a confirmation that the buyer has access to funding, and they won’t face unnecessary delays in closing the property and getting their commission. Many real estate agents will not invest their time and energy in the property search without a preapproval.
The Mortgage Obligations
The mortgage obligations state that if the original borrower doesn’t pay off the mortgage, the co-signer could be held responsible for the outstanding balance. If the lender forecloses on the property, they may sell the property at an auction. If they do not recover the full balance, the lender can seek the balance from both borrowers. It is best to consider all these responsibilities before co-signing on a loan.
Parents co-sign for mortgages when their children become adults and do not have enough credit to purchase a home on their own. The opportunity makes it possible for the adult son or daughter to become a homeowner. Parents can learn more about co-signing for a mortgage by contacting a lender now.