Lenders may accept a co-signer on a mortgage loan if the primary borrower has a short or skimpy credit history or if his debt-to-income ratio is too high. Many people will turn to their parents, whose credit is established longer and usually better. If the parents co-sign, this means that they are undertaking to pay the full amount of the loan if their child defaults.
Co-signing a loan is a common way for parents to help out adult children who want to buy their own home. It’s a big commitment and not to be undertaken lightly. Whether to approve a deal with the co-signer is also at the lender’s discretion, and many have very specific rules about co-signers, including where they live.
Reasons for Co-Signing
Out of State
Some lenders will not accept a co-signer who lives out of state. This is because, if a default happens, they may have to bring a lawsuit in the parents’ state of residence to enforce the co-signatory agreement. This is a legal hassle that most mortgage lenders would rather avoid. Some states may require that the lender attempt to collect from the primary borrower before pursuing the co-signer. Therefore, some lenders make it a matter of policy that co-signers must be in state.
If your lender does have a policy against out-of-state co-signatories, you could ask them if they would accept a written waiver. This would state that any necessary legal action could be initiated in the state where the loan was taken out. Alternatively, you could shop around for another lender who accepts out-of-state co-signers – a local mortgage broker may be able to help.
You could try to find a relative who lives closer who’s willing to co-sign for you, or you could broach the subject of your parents directly giving you cash to boost your down payment as a way to improve your chances of getting the loan by yourself. You could also rethink your strategy, and put off your potential house purchase. Work on improving your credit for a couple of years, so that you can take on the loan on your own terms.
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