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There are times when a tenant needs a cosigner. Perhaps the tenant is a young person who has not yet established a rent or employment record. Or
the tenant’s credit record is not good. Sometimes a tenant, through frugal spending habits, can actually pay the required rent, but doesn’t meet the basic income requirements of the industry. Most professional landlords require that a tenant’s yearly rent not exceed 30% of their gross income, i.e., salary before any deductions for taxes, etc. Thus, to qualify for an apartment renting for $9,000 per year, a tenant must have $30,000 gross income. If, by any chance, a tenant has significant
savings, he or she can probably negotiate a year’s lease by paying a significant amount of rent in advance. For most people however, seeking a cosigner may be the best alternative. A landlord does not have to accept a cosigner, but many do. A cosigner, to be acceptable, usually has to meet all the qualifications of a tenant who would normally qualify for the apartment: good credit and employment record and sufficient income. It helps to have a cosigner who lives in Maryland, though some
landlords will accept cosigners who live out of state. Cosigning a lease is a serious responsibility that should not be taken lightly. Tenants seeking a cosigner should not underestimate the risk that they are asking someone to assume. If a tenant cannot really afford or can’t budget his/her money properly and defaults on the lease, then most landlords will seek payment from the cosigner even if they have to take him/her to court. Simply because a cosigner does not reside in the property
does not mean that they cannot be held accountable for the rent. Furthermore, a cosigner must know whether they are responsible for only the first year of the lease or for renewals thereafter-- as is usually the case. If tenants have been paying their rent on time during the first year, and should their incomes improve enough to have the apartments on their own, then before their current leases renew, they should seek to have non-cosigned leases for the future. If the tenants are
unwilling to do this, and the cosigner wants to be relieved of future potential liability, then the cosigner should send a written notice to the landlord, before the lease renews, that at the end of the current lease he or she will no longer be a cosigner. Sometimes, especially in the case of students, there are three cosigners-- perhaps one from Maryland and two from out of state. The Maryland cosigner and the Maryland tenant should be aware that the landlord can sue one or all of the
cosigners, and it is easier to sue locally than out of state. If the Maryland cosigner has income and assets, they may be the only one sued (and then he/she would have to sue the other cosigners). A cosigner may be a good option, especially for students. Learn more about the risks and benefits of cosigning a lease. Source Fair Housing Action Center of Maryland
(Formerly Baltimore Neighborhoods, Inc.), edited by Mary Rice Last Updated: Wed, 05/25/2022 - 4:45 am Is this legal advice?This site offers legal information, not legal advice. We make every effort to ensure the accuracy of the information and to clearly explain your options. However we do not provide legal advice - the application of the law to your individual circumstances. For legal advice, you should consult an attorney. The Maryland Thurgood Marshall State Law Library, a court-related agency of the Maryland Judiciary, sponsors this site. In the absence of file-specific attribution or copyright, the Maryland Thurgood Marshall State Law Library may hold the copyright to parts of this website. You are free to copy the information for your own use or for other non-commercial purposes with the following language “Source: Maryland's People’s Law Library – www.peoples-law.org. © Maryland Thurgood Marshall State Law Library, 2022.” For individuals with a poor credit history or no credit history at all, finding a lender who will grant them a loan can be tricky. This is where a cosigner comes in. Getting a friend or a family member with a better credit history to cosign a loan can make lenders more likely to grant these individuals a loan. Becoming a cosigner should not be taken lightly. A cosigner takes on all the rights and responsibilities of a loan along with the borrower. This means that if the borrower can’t make a payment on the loan, the cosigner is responsible. Cosigning a loan can also affect the credit score of the cosigner for better or for worse. If you are thinking about becoming a cosigner for a friend or a family member, consider the impact it may have on you and your financial history before agreeing to sign on to the loan. What is a cosigner?A cosigner is a person who has agreed to guarantee the debt of another individual but does not receive any of the loan proceeds. In other words, a cosigner is responsible for the debt if the borrower does not make payments or defaults on the loan entirely. “A cosigner serves as an additional repayment source for the lender,” says Adam Marlowe, principal market development officer for Georgia’s Own Credit Union. “They are a safety net for the lender because they are responsible for the loan in case the primary borrower fails to pay. The cosigner lends his or her good name and credit history to help another borrower obtain financing.” You can be a cosigner for all different types of loans including auto loans, home loans and personal loans. Having a cosigner can help a loan applicant obtain not only the loan, but also more favorable terms and more money than they might otherwise be eligible for. What’s the difference between a cosigner and a co-borrower?There are two types of parties that can apply for a loan alongside the primary borrower: a cosigner and a co-borrower. In both situations, all parties are legally responsible for the debt that’s being taken out. The credit scores and financial details of both parties are also considered in the application. After that, the similarities end. “A co-borrower is a party to the loan in every sense, including being entitled to receive loan proceeds,” says Rich Tambor, chief risk officer at OneMain Financial. “Where purchase of property or a vehicle is involved, they are more likely to be joint owners, too. The cosigner does not receive any loan proceeds, but is responsible for the debt if the borrower does not pay.” Cosigners:
Co-borrowers:
Cosigner responsibilitiesIf you’re considering cosigning a loan for someone, it’s important to know upfront what responsibilities you will have. Paying back the debtThe most important thing to note is your financial responsibility. Though the primary borrower should make the established monthly payments on the loan, that doesn’t mean they always will. If they don’t, it’s your responsibility to pick up the slack. Depending on how late they are, you also may owe penalties, late fees and additional interest. Gather the right information and documents to applyCredit history, credit score, income, debts, employment and other financial details are all likely to be considered as part of the loan application when you agree to become a cosigner for someone. During the application process, a cosigner will need to gather all the related documents so that the primary borrower can submit their application. Cosigner credit score may be affectedA loan you cosign will be added to your credit history, which will impact your credit score. While you are not the primary person responsible for making payments, your credit score will be affected by how promptly payments are made. Any late or missed payments will likely lower your credit score. This also means that your credit score could improve under the right circumstances. If the primary borrower manages their loan well, your credit score could go up. You may also see your credit score improve if the type of loan adds variety to your credit mix that you don’t already have. Cosigner rightsAs you weigh the pros and cons of becoming a cosigner, review the rights of a cosigner to get a complete understanding of the financial implications. You don’t own the propertyUnfortunately, being a cosigner doesn’t give you rights to the property, car or other security that the loan is paying for. You’re simply a financial guarantor. If the primary signer fails to repay the debt, then you’re next in line to make it happen. You can face collections before the primary borrowerWhen you agree to be a cosigner, you agree that collections can hold you responsible for a defaulted loan amount. According to the Federal Trade Commission, a cosigner can face collections for the loan amount before the primary borrower. The cosigner can be removed from the loan in some casesDepending on the lender, the borrower may be able to release you from the loan using a form called a cosigner release. This is a form that the primary borrower will need to sign off on releasing you from the obligations of the loan. However, only the borrower can make this request. The lender must also approve the removal of the cosigner, which it will only do if the primary borrower can demonstrate that they have the credit and history to handle the payments. What should you consider before becoming a cosigner?If you’ve been asked to cosign on someone’s loan, you should seriously consider all the factors before agreeing. Your good credit could help a loved one achieve their financial goals, but is it a good thing for you? Here are a few things to consider before signing on the dotted line: The type of loan you’re cosigning forSecured loans put collateral on the line — a house, a car or another piece of property. This might mean less risk for you because the collateral will be seized if the primary borrower cannot make their payments. However, you should consider when this is a good idea for all individuals involved. For example, a HELOC might seem like an easy way for you to help your child pay off a massive medical debt, but it also puts their house at risk. If they can’t keep up their HELOC payments, as well as their current mortgage loan, where will that leave you? Your financial situationGenerally, lenders want to see cosigners with high credit scores, blemish-free credit reports and long histories of consistent, on-time payments. They’ll also want you to have steady employment and verifiable income. Does this apply to your financial scenario? If it does, are you willing to risk your high-credit status to cosign the loan? Your relationship with the primary borrowerYou shouldn’t cosign a loan for just anyone. Think about your relationship with the primary borrower and consider how well you can trust them. Do you trust that they will make on-time payments? Or, are you worried they may not be able to keep up with the responsibilities of the loan? You’ll want to be able to have open and honest conversations with the primary borrower about money. You both need to feel good about the agreement. The last thing you want is to ruin your relationship over financial tension. The long-term rewards of being a cosignerIf you’re cosigning a loan to help your child go to college or build up credit early on, then the risk may be worth it in the long run. If you’re simply helping a friend pay off credit card debt or buy a car that’s outside of their price range, it’s probably not the best move for you or for them. Lenders that allow cosignersMost personal loan lenders do not allow cosigners. Instead, you will likely need to fill out a joint application where each person has equal responsibility for and access to the loan.
The simplest way to find other lenders that allow cosigners is to ask. A lender may not advertise it or list it as an option in the FAQ, but if you reach out before you apply, you may be able to apply with a cosigner. Mariner and Laurel Road both give you the option to apply with a cosigner. SoFi, LightStream, LendingClub and Upgrade don’t — but you are able to fill out a joint application with them. Your coborrower will technically have access to the loan funds. But if you agree beforehand, they can act like a cosigner even if they are listed as a joint applicant by the lender. The bottom lineAt the end of the day, it’s important to remember what’s on the line. Though cosigning could improve your credit if the primary borrower stays current on their payments, there are also a number of risks to consider. Cosigning a loan could not only threaten your credit score, but also impact your financial prospects for many years. Take into account the full scope of your liabilities, risks and rewards before agreeing to be a cosigner. Frequently asked questionsCan being a cosigner hurt your credit?Yes, being a cosigner for someone else’s loan can hurt your credit. To begin with, the loan will show up on your credit report. In addition, if you want to apply for a loan of your own at some point, the outstanding debt associated with the loan for which you are a co-signer will have ramifications for your loan application. Can a cosigner get out of a loan?Yes, it is possible to get out of a loan if the primary borrower agrees to a cosigner release. All lenders have different criteria for cosigner release, but in general, the borrower will have to demonstrate that they have the credit or repayment history needed to qualify for the loan on their own. Can I remove a cosigner without refinancing?It is possible to remove a cosigner without refinancing. However, in most cases, the lender will likely require the borrower to refinance the loan anyway. This is because it’s unlikely that the borrower would qualify for the same rate and terms without the cosigner, Marlowe says. Learn more:
Does my cosigner have to be there in person?Though cosigners provide a helping hand when obtaining financing, they don't need to be present when you trade in a car. That's because, at the time of trade-in, only the primary borrower has to sign the title.
Is there a way around a cosigner?You could ask a family member or friend to let you become an authorized user on one or more of their credit card accounts. This is a safer agreement that can help you boost your credit standing.
Does a cosigner have to live in the US?Most cosigners are friends or family members of the student who agree to back the loan in case the student is unable to make the payments. The cosigner must be a creditworthy US citizen or permanent resident who has lived in the US for at least two years.
How can I get out of a cosigned loan?Co-signers are on the hook for someone else's debt, but there are ways to get out of the loan.. Transfer the balance to a 0% card. ... . Get a loan release. ... . Consolidate or refinance the debt. ... . Remove your name from a credit card account. ... . Sell the financed asset.. |
Can a cosigner be out of state
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