My father has a home equity line of credit (HELOC) but it is coming to an end and in order to renew it he would need me to cosign with him for it. I trust my father to make the payments and to not use the line of credit in an adverse way to me, however, I want to know how cosigning for the HELOC would affect my own chances of getting my own loan in the near future for a house? I want to make sure that me cosigning isn't going to complicate my own financial needs. Any suggestions or even some pros/cons of cosigning for this?
1 Answer
Cosigning the loan means you are legally responsible for the loan, and the loan will likely show up on your credit report.
Let's say, for example, that a bank would be willing to give you a loan of $50,000 based on your credit history. You cosign a loan for your father, for $20,000. Now, the bank is only going to be willing to extend you another $30,000 of credit, because you are already using $20,000.
The actual specifics are going to be a bit more complicated, of course. If your father makes use of the line of credit, it may change your credit rating sufficiently that you aren't eligible for any additional credit whatsoever. Or you may be eligible for more credit.
Keep in mind, the bank is requiring a cosigner because in their opinion, your father is not a good credit risk. By cosigning, you are specifically stating that you believe the bank is mistaken and are willing to put your good credit on the line, and take over payments if your father is unable or unwilling to pay.
If you are planning on getting a mortgage in the near future, you almost certainly should not be taking on additional loans (via cosigning, or in your own name) at this time. It's not likely to help you at all and may possibly scotch your ability to take on a mortgage.
If you are truly sure it would be appropriate to take on the risk of cosigning the loan, you are far better off to wait until you have your own mortgage in place.
answered May 12, 2015 at 19:30
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6I would like to add that by the time you are held accountable for a missed payment, you are being called by collections and already have a negative mark on your credit history for the next several years. Cosigning is risky for your credit score this way if you aren't on top of everything 100% of the time– CQMMay 12, 2015 at 21:25
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So the HELOC is not a loan but a credit line. So its like having a credit card because you don't get the entire amount of the loan up front but can take and pay it back a you want. So with that said, if my father never uses the HELOC, i.e. imagine having a credit card for emergencies you only use for emergencies and never use, would you answer still apply the same? Like having the HELOC but not using does it impact me negatively?– user6291May 12, 2015 at 22:07
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@user30490 That's basically correct. And yes, even if it's never used it will still affect you; this should be clear if you think about how the money can be withdrawn at any time (even if it isn't). It's a risk; in the short term it decreases the average age of your credit; it increases the total amount of credit in your name; etc. May 13, 2015 at 1:09