Will You Help Me Qualify
For A Home Loan?
What would you
do if a friend or relative asked you to cosign a loan? Before you answer,
make sure you understand what cosigning involves. Under federal law, creditors
are required to give you a notice that explains your obligations. The cosigner’s
You are being
asked to guarantee this debt. Think carefully before you do. If the borrower
does not pay the debt, you will have to. Be sure you can afford to pay if
you have to, and that you want to accept this responsibility.
You may have to pay up to the full amount of the debt if the borrower does
not pay. You may also have to pay late fees or collection costs, which increase
You Do Cosign
Despite the risks, there may
be times when you want to cosign. Your child may need a first loan, or a close
friend may need help. Before you cosign, consider this information:
Be sure you can afford to pay
the loan. If you're asked to pay and can't, you could be sued or your credit
rating could be damaged.
Even if you're not asked to
repay the debt, your liability for the loan may keep you from getting other
credit because creditors will consider the cosigned loan as one of your
Before you pledge property
to secure the loan, such as your car or furniture, make sure you understand
the consequences. If the borrower defaults, you could lose these items.
Ask the lender to calculate
the amount of money you might owe. The lender isn't required to do this,
but may if asked. You also may be able to negotiate the specific terms of
your obligation. For example, you may want to limit your liability to the
principal on the loan, and not include late charges, court costs, or attorneys'
fees. In this case, ask the lender to include a statement in the contract
similar to: "The cosigner will be responsible only for the principal balance
on this loan at the time of default."
Ask the lender to agree, in
writing, to notify you if the borrower misses a payment. That will give
you time to deal with the problem or make back payments without having to
repay the entire amount immediately.
Make sure you get copies of
all important papers, such as the loan contract, the Truth-in-Lending Disclosure
Statement, and warranties — if you're cosigning for a purchase. You may
need these documents if there's a dispute between the borrower and the seller.
The lender is not required to give you these papers; you may have to get
copies from the borrower.
Check your state law for additional
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