a warning to those who have or would consider cosigning for someone!

[Anonymous]

Most people know that cosigning a loan can be dangerous if the other person goes late or defaults, as it affects YOUR credit, right?

What a lot of people don't know is even if that person pays on time every month, when you go to apply for a mortgage or car loan, that payment on the loan you cosigned is counted against your debt ratio! 

The only way most lenders will allow you to not include the payment on the cosigned loan is if the other person pays by check or EFT directly from a bank account with their name on it and can show generally at least 6 consecutive months either of cancelled checks or bank statements with the name of the lender on the bank statement line, to prove that they, and they alone, are making that payment, and not you!  Your name cannot be on that bank account.

Just a little PSA from your friendly mortgage professional.  Shane in OC can probably back me up on this, but just today, I took an app from a guy who I couldn't do anything for, because his back-end debt-to-income ratio (which is the total monthly debt payments, car, credit cards, and including proposed mortgage, divided by gross income) was 87.3% - apparently, he cosigned for a car loan for all 4 of his adult children and had over $1400 of payments on his credit that he was considered responsible for, since none of his kids can prove (in an underwriters eyes) that they, and they alone, make those payments!   So even though all 4 kids pay on time, he cannot get a loan because of the effect on debt-to-income ratio.

[ShanetheMortgageMan]

Yup, bingo.  On co-signed debt make sure the one making the payment is making the payment from their own individual account.

[Anonymous]

How will that work if we are both applying for the mortgage? My partner and I are going to apply hopefully in April. I co-signed for 4 of her private student loans so they show up on both our credit reports, mine showing as a co-signer. She pays these loans out of her own account and we are counting them in our DTI when determining what we can afford. Whatever mortgage person we go to should be smart enough to not double count them, correct? I don't want to take anything for granted!

[Anonymous]

If my wife and I apply for a mortgage, and just use my scores and income alone, will the car I co-signed for her be included in my dti if she shows 6 months of payments from her checking account?

Message Edited by john14 on 02-25-2008 10:24 AM

[ShanetheMortgageMan]

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smg53 wrote:
How will that work if we are both applying for the mortgage? My partner and I are going to apply hopefully in April. I co-signed for 4 of her private student loans so they show up on both our credit reports, mine showing as a co-signer. She pays these loans out of her own account and we are counting them in our DTI when determining what we can afford. Whatever mortgage person we go to should be smart enough to not double count them, correct? I don't want to take anything for granted!

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Heh, yeah you are correct... they would only be counted once.  On a mortgage report for married couples, if a trade line is on both people's credit, it will only report once on the credit report.  The two individual's "tri-merge" credit reports would be jointed/merged together into 1 master credit report.  Some trade lines would say "B" if they are just the borrowers, "C" if it's just the co-borrowers, and "J" if it's a joint account.

[ShanetheMortgageMan]

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john14 wrote:

If my wife and I apply for a mortgage, and just use my scores and income alone, will the car I co-signed for her be included in my dti if she shows 6 months of payments from her checking account?

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12 months of payment history is what is generally required.  If the loan is only 6 months into it though, an underwriter could make an exception.