What does co-signing a mortgage mean?

Question: Dear Kari, My daughter has asked me to co-sign on a home loan so she can buy her first home. It would bring me joy to see her become a home owner. The way it was described to me was I would not have to ever pay any loan payments. I would like to know what, if any, ramifications there might be for me helping out by co-signing for my daughter? I would appreciate your incite on this topic. Answer: Many parents and relatives co-sign with their children to help them obtain their first home. The real estate market is experiencing this practice more as interest rates are up and lenders are tightening their guidelines along with their qualifications. The need for a co-signer occurs when a lender feels the applicant is not a good risk or is too uncertain of a risk to qualify for a mortgage on their own merits. This could be as simple as the lack of credit or the lack of job history, just to name a couple. 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, you may have the loan, instead of a blatant 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, co-signers do not hold ownership of 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 when the primary borrower is in danger of defaulting on the loan. In the event of a foreclosure, it will appear on the co-borrower's credit also. As a co-signer, there will be impacts on your credit even if the primary borrower makes every payment on time, since the monthly mortgage payments will count as a personal obligation of the co-signer. This will reduce the amount of credit available for the co-signer. 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: Is the primary borrower 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 making the payments? Although co-signers cannot take themselves off the loan, once the primary borrowers have one to two years of good standing, history of work and credit worthiness, it would be an ideal time to refinance and release the co-signer from their obligation. A different approach some folks are working with is providing gift funds to their children. The gift funds can be used toward the down payment or paying closing costs or paying off a large debt such as a car loan that the lender might require. This has been known to satisfy some lenders and, in this case, there would be no need for a co-signer, as they can qualify on their own merits. Offering to become a co-signer is an extraordinary gift to help your child into homeownership. Keep in mind you would get all the credit in your child's eyes while not costing you a penny. Owning a house is a wonderful privilege.