What do you do if you need to buy a house and bad debt is a stumbling block? You know you won’t qualify for a home loan, but someone else, maybe a relative, is offering to co-sign your mortgage. Should you accept it?
Is it a good idea
Honestly, you don’t want to go down that path when looking to buy anything. If you ever find that you need a co-signer, then maybe you’re rushing the purchase. The truth is, you aren’t ready for this yet.
Maybe you should spend more time improving your financial situation before considering a mortgage.
When a lender asks you to get a co-signer, it’s a sign they doubt your ability to pay back the loan. In essence, the co-signer serves as the safety net if you fail to settle the mortgage.
So what’s the best thing to do if you find yourself in such a situation?
First, consider your options. Do you really need the house now? Can the project wait a little longer– maybe allow you even more time to recover financially and get ready for a mortgage?
During this extension period, you should settle all debts and rebuild your financial bottom line to increase chances next time you apply.
How to go about a Mortgage
Once you are financially capable of managing a mortgage, it’s important to compare your options and read between the lines before committing to a loan.
If possible, choose a 15-year, fixed-rate loan with no less than 10% initial payment. But 20% is a better strategy because it saves you the hassle of paying for private mortgage insurance(PMI).
Also, ask how much you’ll need to pay per month. This amount should not exceed 25% of the home’s total cost. Monthly payments below 25% allow you to take care of other important financial concerns, like investing and saving.
Final Words
While agreeing to co-sign your loan is a generous gesture from a relative, this move may potentially harm your financial bottom line.
If possible, wait until you have recovered financially and can manage to pay all monthly installments.
Author Bio: Michael Hollis is a Detroit native who has helped hundreds of business owners with their merchant cash advance solutions. He’s experimented with various occupations: computer programming, dog-training, accounting… But his favorite is the one he’s now doing — providing business funding for hard-working business owners across the country.
