Here are some things to consider before you co-sign & how it can impact qualifying for a mortgage
Helping your child get started financially is something many parents are happy to do. Whether it's co-signing on a student loan, apartment lease, or car loan, you're helping them establish credit and take the next step toward independence.
But there's something many parents don't realize: Co-signing can affect your ability to qualify for a mortgage.
How Co-Signing Affects Your Borrowing Power
When you co-sign a loan, you're agreeing to be legally responsible for the debt if the primary borrower doesn't pay. Mortgage lenders generally consider these obligations when calculating your debt-to-income (DTI) ratio.
Your DTI compares your monthly debt payments to your gross monthly income. The higher your DTI, the less room you may have to qualify for a new mortgage.
Here's an example:
Let's say you earn $8,000 per month and have $1,500 in existing monthly debt payments. Your DTI is approximately 19%.
Now imagine you've co-signed on your child's car loan with a $600 monthly payment and student loans requiring $400 per month.
If both payments must be counted, your monthly debt increases to $2,500, and your DTI jumps to more than 31%—unless we can exclude these payments
That difference could affect how much home you qualify to purchase.
Can Co-Signed Loans be Excluded from Your Mortgage Application
Sometimes, yes! Mortgage guidelines may allow certain debts to be excluded from your DTI when someone else is making the payments.
This varies by program, but lenders may be able to exclude co-signed debts when the other borrower has made the payments directly from their own funds for the most recent 12 months, with no late payments.
Deferred student loans could also be excluded depending on the loan program and when loan repayment starts.
Don't assume a co-signed debt can be excluded just because your child has been making the payments. The loan type, payment history, and supporting documentation all matter.
What About Co-Signing an Apartment Lease?
Apartment leases work a little differently than car loans or student loans.
A lease generally doesn't appear as a traditional installment loan on your credit report, but co-signing or guaranteeing an apartment creates a potential financial obligation. I have also seen these leases show up on credit reports.
Depending on the circumstances and mortgage program, your lender may need to review the lease, your responsibilities, and whether any payments or collections must be considered.
Before you Co-Sign, Consider These Questions
Are you planning to buy a home or refinance while this new debt or obligation will be outstanding?
Could you still qualify for the mortgage you want if the co-signed payment counts against your DTI?
Will your child make payments directly from their own bank account?
Can you document the payment history if your mortgage lender requests it?
What happens to your credit and finances if your child misses payments?
Could someone else co-sign, including a spouse, if they won’t be applying for the new credit?
Bottom Line
Co-signing can be a wonderful way to help your children, but it's important to understand the potential impact on your own financial goals.
If you're planning to use your VA home loan benefits, purchase a new home, or refinance, it’s a good idea to talk with a knowledgeable mortgage lender before co-signing.
At Coastie Connect, we're here to help military families and veterans make informed decisions about their home financing options. A quick conversation today could help prevent an unexpected qualification issue tomorrow.
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