As a co-signer on someone else’s mortgage, you face a number of potential financial and legal risks. Such a decision should not be taken lightly. Before agreeing to cosign a loan, it is important to carefully consider the following risks which you will become vulnerable to as a mortgage co-signer.

1. If the person applying for the mortgage becomes unable to pay, the lender will expect you to make the payments. If the bank has added a late payment fee which the borrower cannot afford, this will also become your responsibility as the co-signer.

2. Your ability to obtain loans or other credit may be decreased. According to the Federal Trade Commission, lenders see the mortgage as a debt you are responsible for. The potential obligation to pay the co-signed mortgage increases the risks involved in lending to a co-signer.

3. You could be targeted with a lawsuit by the lending institution if you and the borrower both fail to make the mortgage payments. This could result in additional legal costs which would also be your responsibility.

Individuals are more likely to ask you to act as a co-signer if they have a poor credit record or minimal experience with credit, and your credit record is (or is perceived to be) better. This doesn’t necessarily increase the risks a co-signer is exposed to. For example, someone who has never used a credit card and previously always paid for items in full may be less likely to default on a mortgage than someone who has many debts but hasn’t made any late payments yet. On the other hand, the bank could have a very good reason for not giving the borrower a loan without a co-signer.

Before becoming a mortgage co-signer, it is best to carefully consider the borrower’s ability and intention to continue repaying the loan. Also look at the type of loan being applied for; a mortgage with high interest or a small down payment increases the risks. Unless it is a fixed rate loan, the borrower should be fully prepared to pay more if the interest rate goes up. You also ought to be sure that your positive relationship with the borrower isn’t easily subject to change.

Basically, the risks involved in cosigning a loan make it a problematic decision, especially if you lack a substantial amount of excess income. Keep in mind that even a reliable borrower with consistent earnings can unexpectedly lose employment or experience other financial difficulties.