Common Sen$e: Cosigning…Only in Emergency

ART WOOD

We hear about cosigning all the time in the mortgage business. Cosigning means jointly applying with a borrower for a loan. A cosigner takes on the legal obligation to be a backup repayment source for the loan and, as such, reduces the risk for the lender and helps the borrower obtain a loan. Borrowers can also use a cosigner to obtain better terms for a loan. Typically, a cosigner is someone with a better credit score or more income who can help the borrower get approved for the loan.

As someone who really values and protects my credit, I am not a big proponent of cosigning. You ultimately are putting your credit score in the hands of someone other than yourself. If you cosign for someone and they miss a payment, go to collection, or even worse, experience foreclosure or repossession, this will reflect just as negatively on the cosigner’s credit as the borrower’s. I do understand that sometimes we have a friend or family member who needs the help, and we step in to help. Here are a couple of pointers on cosigning to help protect yourself and your credit.

First, as the cosigner (the one who is helping), you should sign on the first line vs. the second line. If you have gotten a loan before, typically there are signature lines for everyone on the loan. In most cases, the person who signs on the top line is the borrower and the one who signs below is the cosigner. The purpose is that most creditors will reach out only to the borrower (top line) if there is a missed payment. If you are not on the first line, you could think that everything is totally fine because no one has reached out to let you know of an issue. This is not always the case, as different creditors have different processes, but it is not worth the risk. You need always to be in the know, and the best way to do that is to be on the “top line.”

Second, the cosigner should be the one who actually makes the payments. That way, you can be assured that the payments are being made and your credit is protected. Yes, I know that you would then have to collect the payment from the actual borrower, but at least your credit is protected. Even if you the cosigner is the one making the payment, it will reflect positively on both signers’ credit reports. Think of it this way…if you didn’t think the borrower would make the payment, then you wouldn’t have cosigned in the first place. As I said earlier, I am not a fan of cosigning, but I do understand that sometimes it really is the only option. As with most of my articles, I just want to offer financial advice on the best way to protect yourself, while also allowing the other party to build their credit in a positive way as well as help them “do life” with better terms.

ART WOOD (NMLS #118234) is the branch manager of The Art Wood Mortgage Team of Goldwater Bank, located at 2341 Main Street in downtown Tucker. “Tucker’s Mortgage Guy” for sixteen years, he is a former Tucker Tiger (Class of ’92), and co-founder and organizer of Taste of Tucker. Family guy, community guy, and definitely not your typical mortgage guy - it’s all that he does that makes Art Wood who he is. Contact him at 678.534.5834 or art.wood@goldwaterbank.com.

The NX2 Agency

Tucker, GA