5 Things You Should Consider Before Co-Signing a Home Loan

Are you planning on co-signing a home loan agreement? Make sure to consider the following things before closing the deal.

How Does Co-Signing a Home Loan Work?

If a home loan applicantdoes not qualify to meet the financial obligations of a home loansuch as house loan EMI, down payment, etc. – lenders can ask for a co-signer (or guarantor) to improve their overall creditworthiness. Also, getting a co-signer results in lower home loan interest rates.

You can co-sign for a loved one – spouse, child, or friend who hasa lower housing loan eligibility and help them secure a home loan. In most cases, a co-signer is someone with a relatively impressive credit profile. But some lenders ask for a co-signerjust to enhance the loan security.

However, a co-signer is not a co-borrower.Before you sign the dotted line, remember to consider the following things

The Risks Involved

First and foremost, you must be aware of the risks involved.In case the primary borrower fails or delays to repay the loan amount, the sole responsibility of thehome loanrepayment falls on your shoulders.A non-compliance to repay can lead to legal ramifications, loweredcredit score, and a negative entry in your credit report.

Impact on Your Credit Report

A co-signed home loanis recorded in your credit report – both the loan details and the repayment history.If the primary borrower defaults on thehouse loan EMIrepayment, it negatively reflects in your credit report as well.

Besides, any late repayments can lower your housing loan eligibility. Your futurehome loan applications may face rejection following a weak credit profile.

Lack of Benefits

As a co-signer, you cannot use the home loan amount personally. Unlike the primary borrower, youdo not have any access to the loan account, nor can you receive any tax benefits. Yet, the co-signed home loan will affect your credit report.

Debt-to-Income Ratio

Since a co-signed home loan shows up in your credit report, it can increase your debt-to-income ratio as your level of debt increases. This can negatively impact your creditworthiness.If your debt-to-income ratio is high, it can hinder your loan approval.Lenders also assess your co-signed home loan history to review your loan application.

Ready an Exit Strategy

Experts suggest that twelve monthsare enough for the primary borrower to build a reliable credit profile. Following this, you can ask the primary borrower to refinance the home loan and release you as the co-signer from the loan agreement.

Over to You

It is vital to understand the terms and liabilities of the home loan you are asked to co-sign.Do not co-sign if you have variable income or multiple obligations to avoidburdening your pocket. Remember to review the home loan agreement carefully, before signing on the dotted line.

Are you looking for a home loan? Financial Institutions today provide quick and easy home loans at competitive interest rates for better ROIs. Make sure to use Home Loan EMI calculator that helps you find your Interest and principal liability every month as per your loan amount and tenure.