Contingent liabilities are any debt obligations that may demand payment at a future date. The most common type of contingent liability is the co-signed loan, in which the applicant is normally not responsible for the monthly payments. However, if the primary borrower defaults, the co-signer will be held responsible for the loan and default.
Another type of contingent liability is student loans, which do not require payment until six months after the borrower ceases his or her formal studies. With student loans, monthly payments will be taken into consideration if payments must begin within the next 12 months.
If an applicant has co-signed for a loan but does not make payments on that loan, mortgage lenders will exempt those debt payments from consideration against the applicant. For this exemption, the applicant must provide copies (at least 12 to 18 months' worth) of the canceled checks that the primary borrower used to pay the monthly charges of that loan. By showing that someone else was making the payments, the applicant can avoid having the co-signed debt counted against him or her.
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