It could make home buying, or even a refinance, a reality. Mortgage interest rates are bouncing around the low 5% mark that ought to draw consumers to the marketplace by the thousands, and it's doing that to some degree. What still keeps many from getting a loan approved, though, are the stringent underwriting guidelines lenders now employ. Weak credit standing can be a major hurdle to overcome, as is the lack of enough down payment.
The solution could be the use of a cosigner. Normally it would be a relative who is willing to come in and help. His/ her name on the application can move the loan within required guidelines and get it approved, like improve the debt-to-income ratio to where it needs to be and hike the credit score that will then lower the rate. Often the original applicant can afford to make the payments but can't get the stamp of approval for the loan, especially in today's demanding lending environment.
There are a few things the cosigner should be comfortable with before signing on. If the primary borrower somehow defaults he'll be responsible for the mortgage. It'll also impact his future borrowing status because this cosigned home loan will now be on his credit report. This arrangement is not intended to run for ever so he should have an agreement on when the principal borrower will refinance the home and release him from the obligation. There are other precautions that can be taken, for instance setting up a reserve account and keeping an eye on the payment flow. To make everything clear, putting the details in writing might be the way to go.
Las Vegas, as an example, right now offers excellent buying value and this type of a set-up could elevate many credit-challenged borrowers from renters into homeowners, or allow payment-reducing refinancing that otherwise wouldn't work.