If you have a 640 or lower credit score but want to buy a house that costs more than you are qualified for, a cosigner is a great option. Why is 640 an important number? Although you can get financing with a lower score, the costs and interest rates will be much higher. Having a credit score above 640 – or having a cosigner with good credit – means you can qualify for better rates that will save you tens of thousands of dollars over the life of a home loan.
While finding a cosigner is great for you, it puts additional burdens on the person who agrees to cosign. They are responsible for your loan. They must qualify for a loan with their own debt as well as yours. Add in the fact that a cosigner is usually a blood relative, and having a cosigner can create a lot of stress for everyone. This is why a cosigner is often eager for the borrower to refinance and get their name off the loan.
What follows is a real situation that came across my desk in May.
A friend of mine had agreed to cosign for her brother two years ago. Her brother was new in his business and his income did not support the amount of house he wanted to purchase. Since then, he had improved his credit score and was ready to refinance the loan in his own name. My friend was excited, since she would be removed as cosigner which would free up her credit again.
The brother applied for the refinance and was approved. However, when the appraiser went out to the house he was told that he would not be able to go into certain rooms. An appraiser must take pictures of every part of a building for the appraisal to be acceptable to the lender.
As it turns out, there was a (legal) grow room in the basement the brother did not want the appraiser to see!
After some discussion, the brother decided he would not remove the plants and equipment. He would not let the appraiser take the pictures. Almost all loans are resold immediately to Fannie Mae or Freddie Mac on the secondary market, and they will not accept any loan without all the photos or with the knowledge of a grow operation.
The refinance was denied. My friend was not able to be removed as cosigner of the loan.
In this situation, the grow room was a complication to a refinance no one had foreseen. It turns out that if you rent a house to a grower or allow a family member to start a grow operation in your home it can hamper your ability to refinance, even if the grow operation is legal.
While selling Real Estate, I get asked questions about refinancing all the time. When I have a question about something quirky in a home, I call my local expert Rebecca Bartley at Simple Mortgage (810-516-4227). She is a wealth of information I take advantage of regularly. If you have a question, you should call her too. She’s always happy to help.