With credit tightening and lenders getting increasingly picky about who gets a loan, the cosigned mortgage is making a comeback. Here are a few scenarios where a cosigned mortgage makes good sense (and when it doesn’t), along with some tips to get the most out of the deal.
The fact that we’re even discussing a cosigned mortgage loan tells you how tough it is to get bank credit these days. Despite the fact that U.S. banks received billions in Troubled Asset Relief Program (TARP) money in 2008 and 2009, that hasn’t translated into more mortgage loans for U.S. consumers.
According to the Federal Financial Institutions Examination Council, the amount of new loans in the fourth quarter of 2009 made by banks that received TARP money equaled about 25% of the money received in TARP money. Basically, banks held on tight to the money and reduced credit pipelines for potential U.S. homeowners. But that wasn’t the government’s intent when it created the TARP money — the cash given to banks was supposed to open up credit lines and make more money available to U.S. consumers.
Thus the need for mortgage borrowers to explore creative ways to get a loan, and getting a cosigner is near the top of the list.
Of course, cosigning a mortgage has its potential drawbacks. Usually, cosigned mortgage loans involve families — parents who cosign a loan so their young family members can own a home.
But family ties can be shredded if the young homeowner stops making payments and eventually, the bank comes looking for Mom and Dad to make good on the mortgage loan. Once you put your name on a mortgage as a cosigner, you’re just as responsible for the loan as the mortgage holder.