What does co-signing for a loan really mean?

Question: Dear Kari, My son has asked me to co-sign on a loan so he can buy his first home. He assures me I would not have to make any payments. I would appreciate any incite you might have on this matter so I can give an informed yes-or-no answer. Answer: Many parents co-sign for their children to help them obtain their first home. The need for a co-signer takes place when a lender feels the applicants are not a good risk or there is too much uncertainty of a risk to qualify for a mortgage on their own. This could be as simple as a lack of credit or job history, just to name two. Having a qualified co-signer makes the lender feel more confident in giving the mortgage, as it reduces the risk of default on the mortgage. Essentially, the aid of a co-signer can strengthen the deal so the lender can say yes instead of a flat-out no. Crucial information for co-signers to know: The co-signer and the primary mortgage applicant have committed equal responsibility for the full repayment of the loan. However, cosigners do not hold ownership interest in the property. Lenders are not required to inform the co-signer about any late payments on the account. Typically, the co-signer is only contacted by the mortgage company when the primary borrower is in danger of defaulting on the loan. As a co-signer, there will be impacts on your credit even if the primary borrower makes every payment on time. This is because the monthly mortgage payments will count as a personal obligation of the co-signer. In addition, this will reduce the amount of credit available for the co-signer. In other words, if the co-signer went to purchase a home for themselves, they might not qualify because they already have a mortgage on an existing home. To do so, they would have to prove they could not only qualify for their new home, they would also have to qualify for both homes to purchase the new home. An additional key factor is in the event of a foreclosure, it will appear on the co-borrower's credit also. If you're considering taking the position of co-signing, you would be wise to do a little investigating to satisfy yourself with the following: Are the primary borrowers reliable? Do they know how to handle money? Do they have secure jobs? And why do they need a co-signer in the first place? Another question would be are you confident they will keep up with the payments, taxes, insurance and maintenance of the home? Although co-signers cannot take themselves off the loan, once the primary borrowers have two years of good standing history of making all payments on time, this might be the ideal time to have the home refinanced. With the refinancing on the home, this will release the co-signer from all their current obligations on the home. An alternative approach some folks are working with is providing gift funds to their children. The gift funds may be used toward the down payment or paying closing costs. It can also be used for paying off large debts such as a car loan, credit cards, student loans, etc. This has been known to satisfy some lenders so there would be no need for a co-signer, as they will then qualify on their own merits (each loan circumstance being different). Becoming a co-signer is an extraordinary gift and not all folks are fortunate enough to have the opportunity to do so. When all is said and done, it can be a rewarding experience to help someone with such an exciting and large financial decision, as buying their first home.