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About This QuizCo-signing on a loan or a mortgage has many implications for both a borrower and a co-signer. Before you co-sign or ask someone to co-sign on your behalf, you need to known as much as possible. Take a moment to test your knowledge with our quiz before you sign on the dotted line.
What legal implications does co-signing on a loan carry with it?
When you co-sign on a loan, it is a simple way to give a reference on behalf of the borrower.
When you co-sign on a loan, you are making a legally binding agreement.
Co-signing a loan is a legally binding agreement that makes you responsible to pay if the loan goes into default. There are serious legal implications for a co-signer on any loan.
When you co-sign on a loan, you are only obligated to the agreement for the first two years of the loan term.
What piece of advice do friends often give when you tell them someone wants you to co-sign on a mortgage?
Do it, its no big deal.
Never co-sign a loan.
Many friends and acquaintances will warn you that you should never co-sign on a loan regardless of how much you love or trust the person that is asking you to help them.
Check with your bank first.
What is considered the best advice to give someone who is co-signing on a loan?
Tell them to make sure that they know what they are getting into.
Advise the person to be aware of what they are getting into by co-signing a loan contract. They should find out everything they can and consult with a professional before they sign on the dotted line.
Have them tell the person to find someone else to co-sign.
Tell them to co-sign only if the person they co-sign for will agree to return the favor.
What does the bank look for in a co-signer?
The bank wants only someone who has a good credit score.
The bank wants only someone who has a good employment history.
The bank wants only someone who can qualify to make the payments if you default.
The bank is seeking a co-signer that is perfectly capable of making the payments on the loan if you default. A co-signer has to meet all of the same criteria that you do and more.
If you are married, is your spouse’s signature enough to meet the bank's criteria for a co-signer?
The bank will usually require that your spouse co-sign a loan regardless of your financial standing. In most cases, they will tell you that you need a co-signer only if you and your partner's joint finances do not meet their criteria.
What is a sensible way to establish trust between a loan applicant and their designated co-signer?
Pick a close relative or long time friend to co-sign your behalf.
Have a lawyer draw up a legally enforceable contract between you the borrower.
No matter how much you trust the borrower it makes perfect sense for both parties to have an enforceable contract specifying responsibilities with regard to the property. These should be specify terms, such as who will be living in the property, who will maintain it and who will pay the associated bills.
Give the co-signer a deposit equal to three payments on the loan to hold until the loan is paid off.
What should co-signers do before they sign any of the lenders documents?
Have their attorney review all the documents associated with the loan and verify the property title.
Experts recommend that a co-signer should have their attorney review all documents associated with the loan and verify the property title. Have your lawyer make it perfectly clear exactly what you are agreeing to when you co-sign.
Clarify the number of years payments will have to be made before they are released from the contract.
Clarify if they will be responsible for all property costs or only the bank payments should the loan default.
In addition to actually co-signing the loan papers is there anything else you will have to do for the lender?
Sign a loan application.
No, you just have to sign the papers.
Sign an authorization to verify employment.
As a co-signer, you will have to meet the same criteria that the loan applicant has to meet in order to satisfy the banks requirements. This will include giving authorization to verify employment, income and credit rating, along with filling out a loan application.
When you co-sign on a property, is your name on the deed in addition to the person’s that took the mortgage?
only if you request it
Unless you are the spouse or joint owner, a co-signer’s name is not usually included on the deed or property title. That is why you need to be cautious about co-signing; you are fully responsible to pay if the loan defaults but you are not registered as an owner.
If you co-sign a mortgage loan, what consequences can affect you, even if the owner is paying all the payments?
The fact that you co-signed on a property will not affect you in any way as long as the payments are made.
The fact that you co-signed on a property will enhance your chances of obtaining a mortgage.
The fact that you co-signed on a property could prevent you from obtaining a mortgage of your own.
When you co-sign on a property, the debt will be considered part of your debt load and could have a negative impact when you try to obtain a mortgage. In addition to any loan liability, any payment problems the owners have will affect your credit score.
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