Can You Have a Cosigner for an FHA Loan?

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 approved for a mortgage can be challenging, especially for first-time homebuyers or borrowers with less-than-perfect credit. That’s where a cosigner can help. But can you use a cosigner for a Federal Housing Administration (FHA) insured loan? Let’s take a closer look.

What is a Cosigner?

A cosigner is someone who agrees to be liable for repaying a loan along with the primary borrower The cosigner signs the loan documents and becomes equally responsible for making the monthly payments,

This allows borrowers who may not qualify on their own to get approved by combining their income, assets, and credit with the cosigner. It also provides extra assurance to the lender that the loan will be repaid.

FHA Requirements for Cosigners

Yes, FHA does allow cosigners on purchase and refinance loans. Here are the basic requirements according to the FHA handbook [1]:

No ownership interest: The cosigner does not hold an ownership interest in the property being purchased or refinanced. They are strictly liable for the debt, not on title.
Must sign loan documents Except for the mortgage/deed of trust, the cosigner must sign all loan documents including the initial Uniform Residential Loan Application
U.S. citizen or permanent resident: The cosigner must be a U.S. citizen or lawful permanent resident and provide a valid Social Security number.
Minimum credit score: The cosigner’s credit must meet the same FHA minimum score requirements as the primary borrower, currently 580.
Underwriting consideration: The cosigner’s income, assets, liabilities, and credit history will be used in determining creditworthiness for loan approval.
Principal residence: If not living in the home as a primary resident, the cosigner must have a principal residence in the U.S. Military service members stationed overseas may be exempt.
No conflicts of interest: Real estate agents, sellers, builders, loan officers or other interested parties may not act as cosigners on a loan, except in certain family member scenarios.

How Does a Cosigner Help You Qualify?

Adding a cosigner to your FHA loan application can improve your chances of approval in several ways:

Supplements your income: The cosigner’s income is included to help you qualify for the loan and maximize your borrowing potential.
Offers additional assets: Large assets from the cosigner can help you meet minimum down payment requirements. Their reserves boost your qualifying ratios.
Enhances credit profile: A cosigner with an excellent credit history and low debt-to-income ratio can offset negatives on your credit report.
Provides mortgage history: If you have no prior experience with home loans, an established cosigner adds their mortgage track record.
Reduces risk: Cosigners with significant financial resources make the lender more willing to approve a riskier borrower.

Just be sure that taking on mortgage debt makes sense for the cosigner’s own financial situation as well. They take on equal responsibility for repaying the loan.

Cosigner vs. Co-borrower for FHA Loans

It’s important to note the difference between a cosigner and a co-borrower on an FHA loan:

A cosigner has no ownership interest in the property but signs the loan documents and is liable for the debt.
A co-borrower is on title to the property, signs all documents including security instruments, and has rights to the property.

Some key points:

Spouses would typically be co-borrowers rather than cosigners, as they have identical rights to property in community property states.
Relative, friends, or anyone not on title would be cosigners with no property rights.
The income, assets, and credit history of both cosigners and co-borrowers are used in underwriting the FHA loan.
Co-borrowers have some additional eligibility requirements related to occupancy, principal residence, and conflicts of interest.

So consult with your loan officer to determine whether a cosigner or co-borrower makes more sense for your particular FHA loan scenario.

Alternatives to Cosigner for FHA Loans

If you’re having trouble getting approved for an FHA loan, a cosigner is just one option to consider. Here are a few other possibilities:

Improve your credit: Review your credit reports, reduce debts, add positive tradelines. Wait to apply until you meet the minimum FHA score requirement on your own.
Increase your income: Take on a second job or overtime shifts to supplement your qualifying income. Income from all sources is included.
Lower sales price: Opt for a less expensive house that better aligns with your budget and debt ratios. This may get you approved without the need for a cosigner.
Make a larger down payment: FHA only requires 3.5% down but a larger down payment lowers your loan amount and required ratios.
Apply with alternate programs: An FHA 203(k) rehab loan or HomeReady may have more flexible requirements if you don’t meet standard FHA underwriting guidelines.

As you can see, using a cosigner isn’t the only way to get your FHA loan approved. Talk to your lender about the pros, cons, and alternatives when determining the best approach for your situation.

The Takeaway

Yes, you can use a cosigner on an FHA loan as long as they meet citizenship, residency, minimum credit score, and other eligibility criteria. The cosigner’s income, assets, and credit profile combine with yours to enhance loan qualification. Just make sure they fully understand the responsibility they are taking on before agreeing to be a cosigner on an FHA mortgage.

Cosigner for FHA loan: Pros and cons

Helps you qualify for an FHA loan. A cosignerâs financial profile can lower your DTI to meet the FHA requirement of 43%.

Prevents you from defaulting. If you miss a mortgage payment, your cosigner is legally obligated to make the payment for you.

Might help the cosigner build credit. The FHA loan will show up on your cosignerâs credit report. As long as you make payments in full and on-time, this could help both of you improve your credit.

Puts the cosigner at financial risk. When the cosigner agrees to sign the mortgage with you, they also agree to take on mortgage payments if you default. That could seriously impair their finances and prevent them from achieving their own financial goals (like saving for retirement).

Could hurt the cosigners credit score. If you miss a payment, your late payment will show up on your credit report â and theirs. That will hurt both of your credit scores.

Could strain your relationship. Cosigners sign the mortgage with you to help you qualify. If you miss payments or default, they might take it personally.

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Who can be a cosigner on an FHA loan?

A cosigner can be anyone whos had a personal relationship with you BEFORE the loan transaction.

â Cosigners can be friends, family, or spouses. If the cosigner isnt a direct family member, the FHA will ask for proof that youâve had a long relationship with them that doesnât depend on the loan.

â A cosigner canât be someone who has a financial interest in the property â such as a real estate agent, an investor, or the sellers.

Your cosigner should also meet basic FHA requirements:

Credit score of 580 or higher
Debt-to-income ratio of 43% or lower
Two years of continuous employment
Be a U.S. citizen with a Social Security number

Finally, a cosigner should be prepared to help the borrower for the long run. Although their name isnât on the title, they are liable to pay the mortgage if the borrower misses a payment.

Cosigners typically canât remove their name from the loan (unless the borrower refinances into another mortgage, such as an FHA streamline refinance).

FHA Loan with a Cosigner Rules for 2024

FAQ

Can I qualify for a FHA loan with a cosigner?

If you have high debt or a spotty employment history, then adding a cosigner could help you qualify for an FHA loan. With a cosigner, the FHA will look at the entire financial picture of all borrowers and cosigners — “averaging” out the figures to determine eligibility.

Can a first time buyer have a cosigner?

Yes. Cosigners must meet the minimum mortgage requirements for the program they’re applying for. Keep in mind that lenders default to the lowest credit score between you and your cosigner when determining your interest rate.

Can I buy a house with no income if I have a cosigner?

Co-signers and co-borrowers can help you secure a mortgage without a job because they reduce the lender’s risk. In either case, lenders will consider your and your co-signer or co-borrower’s income and credit score, making you a much more appealing applicant.

Can you get an FHA loan with no income?

No Monthly Minimum Income Requirement: Income must be verifiable and consistent for the last two years. However, there is no minimum amount a borrower must make in order to qualify for an FHA loan.

Are co-signers obligated on a FHA loan?

There are some key things to be aware of. A co-signer on an FHA loan doesn’t hold any ownership interest in the property. Although FHA co-signers are obligated on the mortgage note, they have no legal rights to the property.

Can you get a home loan with a cosigner?

Many home buyers will use FHA financing to purchase a home this year because this loan program allows for a low-down payment and flexible credit requirements. Qualifying may still be difficult for some people and applying for an FHA loan with a cosigner could bring the DTI down to within FHA guidelines which can help with the mortgage approval.

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?

Can a non occupant cosigner be on a mortgage?

FHA guidelines will allow a non-occupant cosigner that meets the HUD borrower eligibility requirements to be on the mortgage. In some instances, adding a cosigner may help the home buyer to qualify for an FHA insured home loan. When to Use a Cosigner?