A mortgage cosigner may be able to help you get approved for a loan if you’re trying to buy a house but don’t qualify on your own. With housing affordability at its lowest point since the mid-1980s, a large number of Americans are finding it difficult to qualify for a mortgage loan on their own.
But be sure you know how a cosigner can help and what’s expected of them before you ask that kind uncle or giving grandma for assistance.
Buying a house is a big decision, and it can be even more challenging if you have limited credit history. But don’t worry, there’s still hope! Adding a cosigner to your mortgage application can help you qualify for a loan and achieve your dream of homeownership.
What is a cosigner?
A cosigner is someone who agrees to take on joint responsibility for repaying your mortgage loan. This means that if you can’t make your payments, the cosigner is legally obligated to step in and cover them.
How can a cosigner help you buy a house?
Cosigners can be a valuable asset when buying a house, especially if you have:
- Limited credit history: If you’re new to credit or have a short credit history, a cosigner with good credit can help you qualify for a loan.
- Low income: If your income isn’t high enough to qualify for a loan on your own, a cosigner with a higher income can boost your chances of approval.
- High debt: If you have a lot of debt, your debt-to-income ratio (DTI) may be too high to qualify for a loan. A cosigner with low debt can help lower your DTI and make you eligible for a mortgage.
What are the risks of having a cosigner?
Even though having a cosigner can be very beneficial, it’s crucial to be aware of the risks:
- The cosigner is responsible for the debt: If you can’t make your payments, the cosigner will be on the hook. This could damage their credit score and make it difficult for them to get their own loans in the future.
- The cosigner’s credit score could be affected: Even if you make your payments on time, the cosigner’s credit score could be lowered if you apply for new credit or take on additional debt.
- The cosigner may not be able to buy a house themselves: If the cosigner is already financially stretched, taking on your mortgage debt could make it difficult for them to qualify for their own home loan.
Do you need credit to buy a house if you have a cosigner?
The short answer is no, if you have a cosigner, you don’t always need credit to buy a house. But keep in mind that your application will still take the cosigner’s credit score into consideration. When deciding whether to grant you a loan, the lender will consider the credit histories of both you and your cosigner. Lenders will review your application and take into account the debt-to-income (DTI) ratio for both you and your co-signer.
Here are some additional things to keep in mind:
- The type of loan you’re applying for: Some loan programs, such as FHA loans, have specific requirements for cosigners.
- The cosigner’s financial situation: The cosigner should have a good credit score, a stable income, and low debt.
- Your relationship with the cosigner: It’s important to have a strong relationship with the cosigner, as they will be taking on a significant financial responsibility.
If you’re considering adding a cosigner to your mortgage application, it’s important to talk to a lender to discuss your options and make sure you understand the risks involved.
Frequently Asked Questions
What are the benefits of having a cosigner?
- Qualify for a loan with a lower credit score or income.
- Get a lower interest rate.
- Improve your chances of getting approved for a loan.
What are the risks of having a cosigner?
- The cosigner is responsible for the debt if you can’t make your payments.
- The cosigner’s credit score could be affected.
- The cosigner may not be able to buy a house themselves.
What are the requirements for a cosigner?
- The cosigner must have a good credit score.
- The cosigner must have a stable income.
- The cosigner must have low debt.
How do I find a cosigner?
- Ask a family member or friend.
- Look for a cosigner online.
- Work with a mortgage broker.
What should I do if I can’t find a cosigner?
- Improve your credit score.
- Increase your income.
- Reduce your debt.
I’m a cosigner. What should I do?
- Make sure you understand the risks involved.
- Talk to the borrower about their financial situation.
- Get pre-approved for the loan.
Additional Resources
- LendingTree: Cosigning a Mortgage Loan: What to Consider
- NewCastle Home Loans: How a mortgage co-signer can help you buy a home
- Fannie Mae: Non-Occupant Co-Borrowers
- Freddie Mac: Non-Occupant Co-Borrowers
- FHA: Borrower, Co-Borrower, and Co-Signer Eligibility Requirements
Adding a cosigner to your mortgage application can be a great way to qualify for a loan and buy your dream home. However, it’s important to understand the risks involved and make sure you choose a cosigner who is financially responsible and has a good credit score.
Pros and cons of getting a mortgage cosigner
| Pros | Cons |
|---|---|
|
Increased buying power. You’ll qualify to buy a home you probably couldn’t otherwise afford. Wealth-building potential. You’ll have the chance to build and leverage home equity in other ways later. Future flexibility. You’ll be able to refinance, once your income is higher or your debt is lower — this will let you remove the cosigner from their obligation. Credit building. You and your cosigner’s credit scores will benefit as long as you make regular, on-time payments. |
Additional debt burden. If you can’t make on-time monthly payments, your cosigner will have to make them. Credit issues. If the loan enters default, it’ll affect your credit and the cosigners credit equally. Reduced buying power. You’ll lower the amount of credit the cosigner can qualify for if they apply for another loan in the future. Relationship problems. You could damage your relationship with the cosigner if you aren’t able to make loan payments. |
Cosigner vs co-borrower: What’s the difference?
A co-borrower is your co-star in the mortgage loan, whereas a cosigner is more akin to your understudy.
- Anyone who applies for a loan jointly, such as a couple, is referred to as a co-borrower. They usually both plan to live in the house and take advantage of all the perks of homeownership, and they both accept full responsibility for repaying the debt.
→ A co-borrower typically shares joint ownership rights to the home with you.
- Typically, a cosigner assumes loan repayment responsibility only in the event that the principal borrower is unable to do so. However, the cosigner typically does not reside in the house and is only involved to assist a friend or relative in purchasing their first residence.
→ A cosigner doesn’t hold title to the home, which means that they don’t have any ownership rights.