You can have a cosigner on your FHA loan. Cosigners don’t pay the mortgage each month, but they can use their income to increase your chances of getting an FHA loan.
Basically, FHA lenders will combine all borrowers’ and cosigners’ income, assets, and debts, which could help the entire party meet minimal requirements (e. g. , a max DTI of 43%). Your FHA application may be approved if your cosigner has good credit, a lengthy employment history, and a higher income.
The cosigner is just the last step toward homeownership if you can comfortably afford your monthly mortgage payments, but it’s not always the best option. It may be wiser to reduce debt, increase your income, or sign with a coborrower rather than getting a cosigner for your mortgage application.
Who can be a cosigner on an FHA loan?
Anyone who knew you personally PRIOR to the loan transaction is eligible to cosign.
✅ Cosigners can be friends, family, or spouses. The FHA will require evidence of a long-standing relationship with the cosigner that is unrelated to the loan if the cosigner is not a member of your immediate family.
No one with a financial stake in the property, such as a real estate agent, an investor, or the sellers, may serve as a cosigner.
Your cosigner should also meet basic FHA requirements:
Last but not least, a cosigner must be ready to support the borrower in the long run. If the borrower misses a payment, even though their name is not on the title, they are still responsible for paying the mortgage.
Unless the borrower refinances into a different mortgage, such as an FHA streamline refinance, cosigners typically cannot have their names removed from the loan.
Reasons why you might need a cosigner on an FHA loan
Adding a cosigner could help you qualify for an FHA loan if you have high debt or a spotty employment history. When there is a cosigner, the FHA will consider the totality of all borrowers and cosigners’ financial situations, “averaging” the data to determine eligibility.
⛔️ A co-signer cannot boost a poor credit score
If your credit score is less than 580 (or 500 with a 10% down payment), you might not be able to get an FHA loan. The FHA will use the lowest score as the qualifying number even with a cosigner.
Your debt-to-income ratio is too high
Most likely, a high debt-to-income ratio (DTI) is the main factor driving borrowers to include cosigners. The FHA doesn’t want your monthly debt payments (including those for credit cards, auto loans, and mortgages) to be more than 43% of your pretax income.
Your DTI, for instance, would be 50% if your monthly income were $5,000 but your debt payments were $2,500. However, suppose your cosigner makes $6,000 per month and makes debt payments of $1,500.
Your combined income is currently $11,000, and you owe a total of $4,000 in debt. Your combined DTI would be 36. 36%, putting you firmly below the FHA requirement of 43%.
| Borrower | Cosigner | Combined | |
|---|---|---|---|
| Gross monthly income | $5,000 | $6,000 | $11,000 |
| Monthly debt | $2,500 | $1,500 | $4,000 |
| DTI | 50% | 25% | 36.36% |
| FHA eligible? | ❌ | ✅ | ✅ |
You don’t have the minimum two years of continuous employment
Unless, for instance, your employment was impacted by the COVID-19 pandemic, any gaps in employment or periods of unemployment could prevent you from receiving an FHA loan.
Keep in mind that you are not required to work in the same position or industry for two years. You simply need to demonstrate to the FHA that your income has been consistent during that time.
Coborrower vs. cosigner on FHA loan: What’s the difference?
Compared to cosigners, such as spouses, coborrowers have more ownership of a property. In addition to signing the paperwork, they are also borrowing the money. They consent to contribute to the monthly mortgage payment, share the loan, and have their names listed on the property title.
Cosigners don’t own the property, won’t pay the mortgage on a regular basis, and their names aren’t always on the title. They aren’t there to make the loan; they’re just there to help the borrower get approved.
| Borrowing money? | Making payments? | Named on title? | On the hook for default payments? | |
|---|---|---|---|---|
| Coborrower | ✅ | ✅ | ✅ | ✅ |
| Cosigner | ❌ | ❌ | ❌ | ✅ |
Cosigner for FHA loan: Pros and cons
Helps you qualify for an FHA loan. Your DTI can be reduced to meet the 43% FHA requirement by a cosigner’s financial standing.
Prevents you from defaulting. Your cosigner is required by law to make a missed mortgage payment on your behalf.
Might help the cosigner build credit. The FHA loan will appear on the credit report of your cosigner. This might assist both of you in building your credit as long as you pay everything back on time and in full.
❌ Cons: Having a cosigner…
Puts the cosigner at financial risk. If the cosigner consents to cosign the mortgage with you, they also consent to pick up the mortgage payments in the event that you fall behind. They might not be able to achieve their own financial objectives (like saving for retirement) as a result, which could seriously harm their finances.
Could hurt the cosigners credit score. If you don’t make a payment on time, it will reflect as a late payment on both your and their credit reports. That will hurt both of your credit scores.
Could strain your relationship. Cosigners sign the mortgage with you to help you qualify. They might be offended if you default or miss payments.
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Summary: Is a cosigner on an FHA loan a smart move?
FAQs about cosigner on FHA loan
Yes. When a cosigner makes a late payment, it will show up on their credit report and lower their credit score.
The cosigner is legally required to make mortgage payments if the borrower falls behind on the loan until the borrower starts making payments again.
Yes. The FHA permits non-occupying coborrowers, or those who make mortgage payments but do not reside on the property. An occupant borrower (those who reside in the property) may benefit because the additional income makes it easier for them to make their monthly mortgage payment.
To be eligible for an FHA loan, you must meet a minimum credit score requirement of 580. The FHA does accept credit scores in the range of 500 and 580, but only if you also put down 10% of the purchase price.
Yes, first-time home buyers can have cosigners for FHA loans. Learn why you might need a cosigner.
FAQ
Can a first time home buyer use a cosigner?
Yes, first-time home buyers can have cosigners for FHA loans. Learn why you might need a cosigner.
What disqualifies someone from an FHA loan?
A high debt-to-income ratio, bad credit, or a lack of funds to cover the required down payment, monthly mortgage payments, or closing costs are the three main things that can prevent you from getting an FHA loan.
Can you have a non occupant co-borrower on an FHA loan?
The FHA will accept a co-signer who does not reside at the property for an FHA loan. The lender will consider all of the income, liabilities, assets, and credit scores of both borrowers when approving a mortgage loan with a non-occupying co-borrower.
Does FHA cosigner have to be on title?
FHA has rules for co-signers including a residency requirement. “Cosigners are responsible for the debt and must sign the Note as a result,” Cosigners do not sign the security document because they have no ownership stake in the subject property.