Can Someone That Claimed Bankruptcy Co-sign on a Mortgage?

Co-signing on a mortgage is one of the biggest financial risks a person can take. The cosigner accepts full responsibility for the loan if the primary borrower defaults. A primary borrower with a $200,000 mortgage could simply walk away from the debt, forcing the cosigner to make all the remaining payments or suffer the consequences of foreclosure. Because of the risk, banks and mortgage companies usually require mortgage cosigners to have impeccable credit. That means it's usually impossible for someone to qualify as a mortgage co-signer after a bankruptcy filing.

An Exception

Major credit reporting bureaus such as Equifax and Experian report bankruptcy information for 10 years. Someone whose bankruptcy is over 10 years old might qualify as a mortgage co-signer, since the bankruptcy information no longer appears on credit reports.

Credit Scores

Lenders usually prefer a mortgage cosigner to have a credit score of at least 720, and preferably higher. Credit scores range from 300 to 850, and scores of 720 or greater indicate outstanding credit. It is possible for someone emerging from bankruptcy to build a credit score of 720 after several years. However, a bankruptcy still appearing on credit reports would likely disqualify the prospective cosigner even with an outstanding credit score.

Considerations

People with bankruptcy history have demonstrated that they will walk away from debt obligations. Thats a primary reason why people with a bankruptcy in their history are unlikely to gain approval from mortgage companies as cosigners. Also, people rebuilding their lives after bankruptcy arguably should focus only on their own finances. That is something else a lender may consider when reviewing the application. Although there are many circumstances leading to bankruptcy, people often reach that point by taking on more credit they can afford. Co-signing for a mortgage is almost the same as taking on the debt as a primary borrower. The mortgage shows up on the debtors credit report, and could make it difficult for the cosigner to obtain other forms of credit for himself.

Alternatives

Prospective home buyers who need a cosigner usually have poor credit scores or have yet to establish a suitable credit history. Lenders make individual decisions on lending, but it is possible to gain approval for a mortgage without a cosigner with a credit score of 620. That is the generally accepted cutoff for good credit. Some lenders will approve mortgage loans on scores less than 620, but at higher interest rates. People struggling to qualify should consider renting for two or three years while saving for a significant down payment. Down payments of 20 percent or greater and a reasonable credit score could eliminate the need for a cosigner.