When to Use a Co-Signer on a Mortgage

Qualifying for a mortgage is likely going to be one the biggest financial hurdles in your lifetime.  If you have poor credit or are otherwise unable to meet a lender’s requirements to get a mortgage, then getting someone to co-sign your mortgage could be the way to go.

If your mortgage lender allows non-occupant co-borrowers on loans, applying for a mortgage with a cosigner can help you meet the lender’s basic qualifications.

There are multiple factors to consider when and why you might need a co-signer.  Typically, cosigners are included with a loan application when a person does not have enough qualifying income to be approved for a loan.  This could be as a result of poor credit, lack of credit or long-standing employment history.

What is a co-signer?

A cosigner is someone who doesn’t have an interest in your property, yet they can help you qualify for a loan because their income and assets are taken into consideration when the application goes through underwriting. A cosigner strengthens your home loan application because this person promises to pay the loan if you can’t.  Basically, if you’re not a strong enough applicant on your own and you need someone else who has a better track record to support your application, this is person or persons would be considered a co-signer.

Lender’s look for co-signers who can make up where the primary applicant is lacking; a suitable co-signer has to look good where the main borrower doesn’t.  In other words, if the primary applicant has weak credit, then the co-signers credit has to be strong. If the primary applicant’s soft spot is their debt or income, then the co-signer has to be strong in those areas.

It’s important to know that co-signers can’t guarantee approval.  For instance, a co-signer can’t fix poor credit.  The mortgage underwriter will default to the lower of the two credit scores in a joint mortgage application.  Co-signers can help if an applicant has a new career and does not have sufficient history of earning their income according to underwriting guidelines.  In that instance, they may ask a parent or sibling to cosign.  This way the underwriter can measure the cosigner’s income and existing obligations and use additional cash-flow to help the homebuyer qualify.

A cosigner is also beneficial if you’re self-employed. As a self-employed borrower, you need at least two years of profitable income. But even with this information, it can be harder to qualify for a mortgage. If you write off too many expenses on your tax return, it can appear as if you earn less on paper. Since the bank also uses your cosigner’s income for qualification purposes, the higher income helps you purchase sooner.

Information for the co-signer

As a co-signer, you are basically adding your support to another person’s credit history and income to those initially on the application.

There are a couple of different ways a co-signer can assist.  The first is, the co-signer will be put on the title of the home and lenders will consider them equally responsible for the debt should the mortgage go into default. Another way that co-signing can happen is by way of a guarantor. If a co-signer decides to become a guarantor, then they’re backing the loan and essentially vouching for the person getting the loan that they’re going to be good for it. The guarantor is going to be responsible for the loan should the borrower go into default.

Co-signing isn’t something to be taken lightly, and even if the relationship is that of a parent/child, it may be worth looking into a formal legal agreement between all co-borrowers to clarify that the primary applicants are the ones living in the home and responsible for making the mortgage payments.

If you have questions about qualifying for a mortgage or using a co-signer for your own situation, a loan officer can help you determine that after looking at your financial profile.

 

 

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