You can have a cosigner on your FHA loan. Cosigners donât pay for the monthly mortgage, but they can use their income level to help you qualify for an FHA loan.
Basically, FHA lenders will combine the income, assets, and debts of all borrowers and cosigners, which could help the entire party meet basic requirements (e.g., a max DTI of 43%). A cosignerâs good credit, long employment history, and higher income can help your FHA application get approved.
If you can confidently afford your monthly mortgage payments, the cosigner is simply the last push into homeownership â but itâs not always the best choice. Instead of recruiting a cosigner to your mortgage application, it might be smarter to pay down debt, find ways to boost your income, or sign with a coborrower.
Getting an FHA loan to buy a house can be an exciting yet challenging process, especially for first-time homebuyers. One common question that comes up is, can you get a cosigner on an FHA loan? The short answer is yes it is possible to add a cosigner to your FHA mortgage application. However, there are specific FHA guidelines and requirements around cosigners that you need to understand.
What is a Cosigner on an FHA Loan?
A cosigner is someone who agrees to be equally responsible for repaying the mortgage loan, along with the main borrower The cosigner signs the mortgage note and essentially co-applies for the loan However, the cosigner does not hold any ownership interest in the property itself. Their income, assets, credit, and debts are taken into consideration for loan approval, but they do not go on title.
Having a cosigner can help borrowers who have limited credit history or insufficient income get approved for an FHA loan It gives lenders another party to look to for repayment if the main borrower defaults Family members like parents often cosign for first-time buyers.
FHA Cosigner Rules and Requirements
The Federal Housing Administration (FHA) does allow cosigners on FHA loans, but there are specific guidelines lenders must follow:
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Eligible Cosigners: The cosigner must be a relative of the borrower, defined as someone related by blood, marriage, or law. Friends, for example, cannot cosign an FHA loan.
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Occupancy Status: The cosigner does not have to live in the home being purchased. They can be a non-occupying cosigner.
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Credit Requirements: The cosigner is fully credit-qualified for the mortgage. Their income, assets, debts, and credit history are reviewed.
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Underwriting: The cosigner’s information is used along with the borrower’s to determine if the total household qualifies for the loan amount and payments.
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Loan Signing: The cosigner must sign the initial Uniform Residential Loan Application (URLA) and is obligated to repay the mortgage debt. But they do not sign over title to the property.
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Other Rules: Cosigners cannot have a financial interest in the sale of the home, like being the seller or real estate agent. And they must have a principal U.S. residence.
Pros and Cons of an FHA Cosigner
Here are some key advantages and potential drawbacks to think about when adding an FHA cosigner:
Pros
- Improves debt-to-income ratios
- Offsets limited credit history
- Provides additional income
- Increases buying power
- Helps borrowers qualify
Cons
- Cosigner is liable for mortgage
- Can damage cosigner’s credit
- Strains family relationships
- Less privacy over finances
- Difficult to remove cosigner
Be sure to carefully weigh the pros and cons before deciding if a cosigner makes sense for your FHA mortgage. Make sure the cosigner understands the risk and LIABILITY involved.
alternatives to an FHA Cosigner
Some other options to consider instead of or in addition to an FHA cosigner:
- Save a larger down payment to improve debt-to-income ratios
- Pay down debts to reduce your monthly obligations
- Build your credit history with responsible use of credit over time
- Enroll in credit counseling or homebuyer education programs
- Look into down payment assistance programs in your area
- Adjust your home purchase budget and timeline if needed
The key is being patient, and working to improve your credit and financial profile. This will help you get approved for an FHA loan without the need for a cosigner.
How to Remove an FHA Cosigner Later On
It can sometimes be difficult to remove a cosigner from your FHA loan later on. You typically need to refinance into a new mortgage in just your name only. Options include:
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FHA Streamline Refinance – If you have made 12 months of on-time payments on your current FHA loan, you may qualify to refinance without an appraisal using this program.
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FHA Cash-Out Refinance – After making 6-12 months of payments, you can cash-out some equity and potentially “pay off” the cosigner.
In either case, you need to demonstrate you now qualify on your own, without the cosigner’s help. This requires good income, credit, and debt-to-income ratios. Paying down other debts also helps improve your case for removing the cosigner.
Final Thoughts
Getting approved for an FHA loan is easier for some borrowers if they add a cosigner to their mortgage application. Just make sure you understand the FHA guidelines around eligible cosigners. Consider the pros and cons, and have a plan for eventually removing the cosigner if possible. Be patient, work on improving your financial profile, and consult a mortgage pro or housing counselor for guidance on your specific situation.
Coborrower vs. cosigner on FHA loan: Whatâs the difference?
Coborrowers have more ownership over a property than cosigners â such as spouses. Theyâre actually borrowing the money, too, not just signing the papers. Because they agree to share the loan, theyâll contribute to the monthly mortgage payment, and their name will be on the title of the house.
Cosigners donât have ownership over the property, they wonât contribute to the monthly mortgage, and their name isnât always on the title. Theyâre there simply to help a borrower qualify for a loan, not pay it.
| Borrowing money? | Making payments? | Named on title? | On the hook for default payments? | |
|---|---|---|---|---|
| Coborrower | â | â | â | â |
| Cosigner | â | â | â | â |
You donât have the minimum two years of continuous employment
Any gaps or periods of unemployment could disqualify you from an FHA loan â unless, for example, your employment was impacted by the COVID-19 pandemic.
Keep in mind you donât need to stay in the same job or the same field for two years. You just need to show the FHA that youâve been steadily earning income for that time.
FHA Loan with a Cosigner Rules for 2024
FAQ
What is required to be a cosigner on an FHA loan?
Can a first time buyer have a cosigner?
Can I get an FHA loan with bad credit and a cosigner?
Can I buy a house with no income if I have a cosigner?
Can I get an FHA loan with a co-signer?
FHA loans are government-backed loans through the Federal Housing Administration (FHA) that allow you to buy a home with a lower credit score and as little as 3.5% down. If you want to get an FHA loan with a co-signer (you can have a maximum of two), your co-client will need to meet a few basic criteria.
What is a cosigner on a home loan?
Co-signers can be family members, friends, spouses, or parents.When you co-sign on a loan, it’s not just a character reference; it’s a legally binding contract.This means that if the primary signer defaults
Who is a FHA cosigner?
A cosigner can be anyone who’s had a personal relationship with you BEFORE the loan transaction. ✅ Cosigners can be friends, family, or spouses. If the cosigner isn’t a direct family member, the FHA will ask for proof that you’ve had a long relationship with them that doesn’t depend on the loan.
Should I use a co-borrower or cosigner for my FHA loan?
Having a co-borrower or cosigner may improve the FHA loan applicant’s chances of getting approved for the mortgage. Using a them is also a way for a borrower with established credit to help a less established co-borrower become a homeowner under the proper circumstances. But what’s the difference between a cosigner and a co-borrower?