Home equity loans offer people the chance to borrow cash from the equity in their homes. In order to be qualified for this type of loan, the homeowner needs to satisfy income and credit requirements put forth by the lender. You may request that a co-signer be added into this application to help overcome bad credit or low earnings levels. The co-signer doesn’t need to be on the deed.
Qualifying
You need equity in your property to meet the requirements for a home equity loan. According to the Federal Trade Commission (FTC), lenders often allow up to 85 percent of the value of your home, offset the amount owed on the notice. Qualifying for a home equity loan ensures meeting particular lending requirements. The lender reviews your credit history, income levels and unpaid debt to find out whether you meet underwriting standards. Applicants with bad credit or insufficient income can add a co-signer into this application to improve the chances of qualifying.
Co-Signing
When a lender is unwilling to take a risk on your application, a co-signer will improve your chances. Including a co-signer who has better credit and greater income than you often leads to an approval. The co-signer secures the loan by promising to cover the debt in the event the principal borrower defaults. The added level of safety on the loan assures the lender that someone will repay the debt when the principal borrower defaults.
Disclaimer
California Civil Code 1799.1 requires lenders to issue a disclaimer with every application featuring a co-signer. The disclaimer warns the co-signer that he is taking on someone else’s debt, which has to be paid in full in the event the principal borrower defaults. The lender doesn’t have to pursue collection efforts against the principal borrower before going after the co-signer. As co-signer, you may be sued in court and have a judgment issued against youpersonally. The lender can garnish your wages to recoup the money owed. The collection attempts also get reported on your credit file, decreasing your score and affecting your ability to get credit.
Considerations
According to the FTC, roughly three out of each co-signers are requested to repay the debt because the principal borrower defaults. As a co-signer, you just take on a danger that the bank is unwilling to assume. Protecting your financial interests should be your top priority at a co-signing scenario. You may request in writing that the lender contact you when the principal borrower misses a payment. You also may request to be held responsible for the total cost of the loan excluding any court costs, interest, collection fees, or delinquent fees accrued because of the primary borrower’s failure to cover.