Buying and financing investment real estate can be relatively easy for some and for others, well, not so much. Especially for someone trying to finance a first property when rental income is typically not allowed to help qualify the first go-round. cosign mortgage loansSometimes an investor needs a little help.

A little help from a co-borrower. Or maybe a young real estate investor needs a little help…from you. What happens when people co-sign for others?

Co-signing on a mortgage means obligating yourself to make the payments should the primary borrower default. That’s simple enough but there are a few additional details you’ll want to know about. The very first requirement a lender will have is good credit for both the primary borrower and the co-signer. It used to be common for someone with not-so-good credit to call up rich Uncle Harry and have the Uncle’s considerable assets overcome the credit delinquencies of the primary. No longer. If the primary borrower has poor credit, the game ends right then.

Next, the co-signers existing debts must also be included in the debt-to-income mix. If the co-signer has more than a few monthly obligations and the new mortgage payment for the rental property pushes debt ratios closer to 50, the loan will likely be denied. It’s not just the new mortgage that will be counted but rather all debt from the primary as well as the co-signer.

Finally, even though the primary will be making the monthly payments, the payment history will automatically appear on the co-signer’s credit report. Two things can happen here. The first is adding additional debt that may hamper future credit applications and second any late payments the primary borrower makes appears on the co-signers credit report, often without the co-signer even knowing about the late payments.

Co-signing is a great tool to help someone who is just starting out investing in real estate and can lead to great things. Just go into the agreement with eyes wide open; you’re both in it together now.