Qualifying for a mortgage is likely going to be one the biggest financial hurdles in your lifetime. If you know that your credit is less than perfect, or if you have already met with a lender and found out that you don’t meet their requirements to be approved for a mortgage, then finding someone to co-sign your mortgage could be the way to go.
If your mortgage lender allows individuals who will not live in the home and co-borrowers on loans, applying for a mortgage with a co-signer 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, co-signers 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 co-signer is someone who can help you qualify for a loan because their assets and income are taken into consideration. A co-signer is someone who will be responsible for the loan if you can’t pay it back. 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 trouble area 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 a sufficient history of earning their income according to underwriting guidelines. In that instance, they may ask a parent or sibling to co-sign. This way the underwriter can measure the co-signer’s income and existing obligations and use additional cash-flow to help the homebuyer qualify.
A co-signer is also beneficial if you are self-employed. As a self-employed borrower, you need at least two years of profitable income. Individuals who are self-employed with great credit still might have a difficult time qualifying for a mortgage. If a self-employed person writes off too many expenses on their taxes it can look like the person earns less than they actually do. If a self-employed person uses a co-signer, similar to those who do not have enough credit or poor credit, the co-signer’s income is used for qualification purposes and 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.
List the co-signer on the title of the home. If you take this route, lenders will consider them equally responsible for the debt should the mortgage go into default.
Have a guarantor; a co-signer who is a guarantor is backing the loan and vouching for the person getting the loan. This person will be responsible for the loan should the borrower go into default.
If you are thinking of becoming a co-signer or if you are looking for a co-signer, know that the decision should not be taken lightly. It is common practice for some parents to co-sign for their adult children. Even then, it’s advisable to have a formal legal agreement between all parties.
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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