Does cosigning a home loan affect my estate if I pass away?
Dear Credible Money Coach,
If you cosign a home mortgage, will it affect your estate after your death? — Philip
Hello Philip, and thank you for your question. Knowing what will happen to your estate is a wise way to care for the loved ones who will inherit your assets after you pass away.
Cosigning a mortgage can be an excellent way to help someone purchase a home. They may need a cosigner to get approved if they have poor credit or low income. In addition, cosigning may allow a primary borrower to get a lower mortgage interest rate than they could on their own.
But cosigning a credit account comes with risk. The primary borrower could make late payments or default. In that case, the credit of both cosigners would suffer. Plus, both cosigners are equally responsible for repaying a debt, which could pass to your estate.
When a cosigner becomes liable for a mortgage
As a cosigner on a mortgage, you must repay it if the primary borrower stops making payments. So as long as the primary borrower continues to pay the mortgage after you pass away, your estate likely won’t be at risk.
However, if a cosigned mortgage assigns liability to your estate and the primary borrower stops making payments, the lender could require your estate to make payments.
Consult with an attorney to fully understand how cosigning a loan could affect your estate.
Consider an FHA loan
If a primary borrower can’t qualify for a conventional mortgage, one option is to apply for an FHA loan. Some lenders approve borrowers with credit scores as low as 500 if they can put down 10%. The down payment can be as low as 3.5% with a higher credit rating.
Always shop and compare multiple offers to find the best mortgage rate before cosigning a loan.
Ready to learn more? Check out these articles …
- Why is it important to have good credit?
- What happens when the person you cosigned for doesn't pay?
- Joint mortgage vs. joint ownership: What to know
- What credit score do you need for a mortgage?
- How much does a $300,000 mortgage cost and how can I get one?
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About the author: Laura Adams is a personal finance and small business expert, award-winning author, and host of Money Girl, a top-rated weekly audio podcast and blog. She’s frequently quoted in the national media, and millions of readers and listeners benefit from her practical financial advice. Laura’s mission is to empower consumers to live richer lives through her speaking, spokesperson, and advocacy work. She received an MBA from the University of Florida and lives in Vero Beach, Florida. Follow her on LauraDAdams.com, Instagram, Facebook, Twitter, and LinkedIn.