Requirements for a Cosigner

Before cosigning a loan or lease for a friend, child or other relative, consider the cost. Cosigners undertake serious responsibilities. Lenders or renting agents look carefully at the income, assets and creditworthiness of prospective cosigners, in addition to other possible qualifications. That is for good reason. The requirements for qualifying pale next to the requirements when a primary signer stops paying. Cosigning puts your income, assets and credit at risk.

Qualifying Requirements

Qualifying requirements for a cosigner include income, assets and credit history sufficient in the eyes of the lender or leasing agent to fulfill the contract. A lender also may add additional rules. For example, the Federal Housing Administration (FHA) requires a cosigner to be related by blood to the primary signer in most cases. If not, the cosigner must prove a close, familial relationship over the long term and not solely for the purpose of the loan. For a private student loan, the requirements depend on the lender. Wells Fargo, for example, accepts an adult with qualifying credit and citizenship, whether related or not.

Responsibility for the Debt

A cosigner guarantees payment of the debt or other obligation, such as rent on a house or an apartment. This responsibility means that, if the primary signer misses or stops making payments, the cosigner must pay. The creditor can ask you to pay the entire amount, plus costs for collecting and late fees.

Default

The obligations of a cosigner include putting both income and assets at risk to pay the obligation. If a loan goes into default, the lender has the right to take the cosigner to court or garnish pay checks. If a cosigner puts up a car or other possessions to back the loan, the lender has the right to take them. In many states, the lender can come after the cosigner even before the primary signer.

Credit History

The responsibility of cosigners entails accepting the credit history of the loan or lease, including any default or late payments. Since a cosigned loan appears on their credit reports, cosigners have less credit or ability to borrow in their own right.

Tips for Cosigners

If you cosign, obtain copies of all the paperwork and ask the lender or renting agent to disclose the total amount of your obligation. As part of the contract, obligate the lender to inform you immediately of any missed payments. Ask whether the lender will terminate you as cosigner if the primary borrower has made regular payments, becomes disabled or dies. If a lender wants you to pay off a loan in default, negotiate first, suggests Mary Rowland of MSN Money. Ask the lender to settle for a percent of the total. Make a contract between you and the borrower and a clean credit report from the lender part the transaction.