A mortgage cosigner takes on the responsibility of ensuring a mortgage loan is paid. Some borrowers need help from a more financially secure cosigner in order to qualify for a mortgage, and those who help out should understand exactly what theyre getting into.
A cosigner can be anyone who promises to take on the responsibilities of paying the loan if the other signers default. When mortgage qualifications are analyzed, the lowest credit score from all the applicants may be used. For that reason, a cosigner isnt usually valuable for their credit. Much of the reason for having a cosigner is because the borrower doesnt have enough income, or has a debt-to-income ratio that’s too high to qualify for a mortgage on their own.
Mortgage cosigners may be parents who want to see their adult children living comfortably in a house. In some cases, theyre occupant co-signers who will also live in the house.
Cosigners are slightly different from co-borrowers because they dont have an ownership interest in the property. Not all lenders allow co-signers.
Getting a home loan can be challenging, especially for first-time homebuyers. Many lenders require a good credit score, stable income and a substantial down payment to qualify borrowers for a mortgage. If your finances aren’t quite up to the lender’s standards, you may have difficulty getting approved for the loan amount you need.
Adding a cosigner to your mortgage application can help boost your chances of approval and allow you to qualify for better loan terms. Here’s what you need to know about getting a home loan with a cosigner.
What is a Cosigner on a Home Loan?
A cosigner, also known as a co-borrower or co-client is someone who agrees to be equally responsible for repaying the mortgage loan along with the primary borrower. The cosigner must sign the loan documents and their credit income, assets and debts are taken into account when applying for the mortgage.
If the primary borrower misses payments or defaults on the home loan, the cosigner is legally obligated to take over the payments This makes the loan less risky for the lender since there is a second person guaranteeing repayment.
Family members like parents, grandparents siblings and relatives are commonly cosigners on home loans for first-time homebuyers who need help qualifying. Spouses may also cosign on a mortgage loan together.
Benefits of Having a Cosigner on a Home Loan
Adding a cosigner with good credit and finances to your mortgage application can provide several advantages:
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Improved approval chances – Lenders look at the cosigner’s credit score, income, assets and debts. This gives borrowers with poor credit or limited finances a better chance of approval.
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Ability to qualify for more – With the cosigner’s income supplementing yours, you may qualify for a larger loan amount and lower interest rate.
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Meet lending requirements – Borrowers who don’t meet requirements for employment history or credit on their own may qualify with a cosigner.
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Access better rates – Even borrowers with good credit can benefit from improved rates by adding a cosigner with exceptional credit.
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Mortgage options – Allows more options like FHA, conventional and VA loans that have strict underwriting standards.
Considerations for Cosigners on Home Loans
While cosigning can certainly help the primary borrower, the cosigner takes on all the risks and obligations of the mortgage loan. Before agreeing to be a cosigner, make sure to consider:
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You are equally responsible for the loan and payments. If primary borrower defaults, you must make the payments.
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Missed payments by the primary borrower will damage your credit too.
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You likely cannot remove yourself from the loan later on if your circumstances change.
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Consider if the primary borrower is financially responsible and can handle the mortgage payments.
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Be certain you can afford to take over the payments if needed before cosigning.
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Get access to statements and be notified if primary borrower misses payment.
Steps to Getting a Home Loan with a Cosigner
If you think a cosigner is needed to help you qualify for a home loan, follow these key steps:
1. Find a willing cosigner – Ask a family member or relative with good credit and finances if they can cosign on the mortgage with you. Never ask an acquaintance or friend you barely know.
2. Check credit reports – Review both your and the cosigner’s credit reports for errors that could impact approval. Dispute any inaccuracies found.
3. Verify cosigner requirements – Confirm the lender’s specific requirements for income, credit score, assets and debts for cosigners.
4. Gather required documents – Tax returns, bank statements, pay stubs and other paperwork will be required from both you and the cosigner.
5. Complete mortgage application – The cosigner must fill out the application and provide their personal information just like the primary borrower.
6. Undergo underwriting – The lender will assess both applicants’ credit, income, assets, debts and eligibility based on the loan program’s criteria.
7. Get loan approval – If approved, the cosigner must sign the loan documents and take on legal liability for repayment along with the primary borrower.
8. Shop for homeowners insurance – Work with your insurance agent to find a suitable homeowners insurance policy and add the cosigner if required.
9. Close on the home – At the closing appointment, the cosigner signs the final mortgage papers. Their name may or may not appear on the home title.
Alternatives If You Can’t Get a Cosigner
If you have no cosigner options, don’t lose hope. Here are some alternatives if you need help qualifying for a home loan:
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Explore government-backed FHA, USDA or VA loans with flexible requirements for low down payments and lower credit scores.
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Look into down payment assistance programs for grants or low interest second loans to cover your down payment.
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Build up your credit score and pay down debts to improve your home loan eligibility over time.
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Save up for a larger down payment which can offset credit weaknesses when applying.
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Work on increasing your income with a promotion, second job or a spouse’s earnings.
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Seek lender programs for first-time homebuyers, low-income borrowers or those without credit history.
FAQs about Home Loans with a Cosigner
Can any family member be a cosigner on my mortgage?
Most lenders allow immediate family like parents, siblings, grandparents or children over 18 to be cosigners. Spouses can also cosign.
Does a cosigner have to be on the mortgage and title?
The cosigner must be on the mortgage but usually won’t be added to the home’s title unless they are a relative living in the home.
What credit score does a cosigner need?
Lenders typically require cosigners to have a minimum 620 credit score for conventional loans and 580 for FHA loans. The higher the better to get the best rates.
Can I remove a cosigner later by refinancing?
Yes, if you refinance into a new loan in only your name, it removes the cosigner from the mortgage. But they must agree to be taken off.
Does cosigning a mortgage hurt the cosigner’s credit?
As long as the mortgage payments are made on time, there is no negative impact. But if payments are missed, it damages the cosigner’s credit too.
The Bottom Line
Getting approved for a mortgage is a major obstacle for many prospective homebuyers. A cosigner can be a huge help improving your chances of qualifying and securing better loan terms. Just make sure both you and the cosigner carefully weigh the risks and benefits first.
How will cosigning a mortgage affect my finances?
If the borrower on the loan makes payments on time, you may never notice that you have an additional financial obligation.
However, if they make late payments or skip them, you’ll see that reflected on your own credit report. A single late mortgage payment could lower your credit score, so its nothing to ignore. That can move you down to a lower credit tier, such as from excellent to good, and make it harder to get the best interest rates on credit cards, auto loans and other money you borrow. You may even see rates on your existing accounts edge upward if your credit score takes a turn for worse.
In the short term, your additional financial obligation could alter your debt-to-income ratio. This will be a concern primarily if you plan to borrow money for your own real estate or vehicle purchase.
Should the borrower stop paying, and you’re unwilling or unable to make payments, the default may eventually show up as a foreclosure. This significant black mark on your credit may dramatically impact your credit and reduce your ability to get a loan in the future.
Have questions? Connect with a home lending expert today!
These articles are for educational purposes only and provide general mortgage information. Products, services, processes and lending criteria described in these articles may differ from those available through JPMorgan Chase Bank N.A. or any of its affiliates. The views expressed in this article do not reflect the official policy or position of (or endorsement by) JPMorgan Chase & Co. or its affiliates. Views and strategies described may not be appropriate for everyone and are not intended as specific advice/recommendation for any individual. Information has been obtained from sources believed to be reliable, but JPMorgan Chase & Co. or its affiliates and/or subsidiaries do not warrant its completeness or accuracy. You should carefully consider your needs and objectives before making any decisions and consult the appropriate professional(s). Outlooks and past performance are not guarantees of future results. For more information on available products and services, and to discuss your options, please contact a Chase Home Lending Advisor.
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