You're in love – or so you think – but there is no commitment for long term, and you want to buy a house together. Is this a good idea? Why or why not? The following discussion will help you to decide whether or not cosigning a loan is the best course of action.
Many believe the answer is no. Why? Because the cosigner is as responsible for the loan as if it were his/her own. If one party is not able to purchase the home, or other product, on his or her own, the better part of valor may be to improve credit scores and financial stability prior to committing to a large purchase and then putting it in one name.
Always remember that, as a cosigner, if the original signer on the loan misses a payment or defaults, creditors will contact you for money. Worse, if the debt remains unpaid your salary can be garnished and creditors may seek you out aggressively hoping to be repaid. This can also spell disaster for your credit report as you will be also be in default of the terms of the loan if you don't pay the bill.
If you are starting to worry about cosigning, but still really want to make the purchase, another choice is to purchase the large item in the name of one person and share the payments. This, too, can be tricky, but at least the borrower is believed to be able to repay the loan on his/her own making the chance of defaulting less likely.
If past history suggests that a person is not able to get a loan alone based on a credit report or bad habits, you can work together to improve the financial picture. For example, take out a credit card with a low balance limit and use it responsibly; regularly paying the bills and staying below the pre-determined limit will go a long way towards bringing credit numbers up.
Bottom line, co-signing is a risk. A big one if the person you are cosigning for does not have the wherewithal to do so on his/her own. Make sure you know what your risks are before walking blindly into an agreement that could change your financial health forever.