Cosigning a student loan doesn’t just impact your credit score. It also affects your debt-to-income ratio (DTI) and your chances of getting a mortgage. Let’s break down what that means:
Debt-to-Income Ratio (DTI): DTI shows how much of your income goes towards paying debts, like student loans or credit card payments. Lenders use DTI to gauge whether you can afford a mortgage.
Increased DTI: When you cosign a student loan, the loan appears on both your and the primary borrower’s credit reports. This increases your overall debt load, raising your DTI.
Mortgage Eligibility: Lenders consider your DTI when deciding if you can repay a mortgage. A higher DTI due to cosigned loans can make it harder to qualify for a mortgage or get favorable terms from lenders.
Keep in mind that if the primary borrower defaults on the loan, you’ll be responsible for making payments. This can further impact your DTI and credit score if you can’t make payments on time.
Cosigning a student loan can have benefits too.
The primary borrower might qualify for a lower interest rate with your help, saving money over time. Plus, timely payments can improve the credit scores of both the student and the cosigner.
But remember, when you’re trying to buy a house, a strong credit history, and low DTI matter. Late payments, high debt, or too many credit inquiries can hurt your chances of getting a mortgage.
Parents often cosign for their kids’ private student loans, but it’s crucial to weigh the potential impact on your own financial goals, like buying a house. Before you cosign, consider the pros and cons carefully, and make an informed decision.