Co-signing for a friend or family members creates debt that MOST DEFINITELY CAN affect your ability to qualify for a new home loan. Many people believe that since the other person is making the payment, we will not have to count it against your debt to income (the money you make vs money you spend, including the new house payment), BUT that is NOT CORRECT. The only way to remove the debt payment from your debt to income ratio is to show that you are truly only a co-signer on the account. This can be done by showing that you are in second position on the loan AND by verifying the payments are being made by someone else. This is done by providing 12 MONTHS OF THEIR BANK STATEMENTS and we must show that the main account holder is making the payments from THEIR OWN BANK ACCOUNT. Cash payments that cannot be verified, cannot be used to offset the payment.
The moral of the story is that if you have no choice but to co-sign for someone, please be sure that you are truly signing in second position and confirm with them that all payments will be made from their bank account so that they can be verified. If this is not the case, and you have aspirations of purchasing a home, please encourage them to find another co-signer.
Otherwise, we will require a 12 months history verifying that the payment has been made from the other persons account each month for a minimum of 12 months. With that, the debt no longer counts against you!