6 min read Feb 16, 2024

Co-signed Mortgage: Everything You Need To Know

Edited By

Megha Mulchandani

Edited By

Megha Mulchandani

Editor, Houzeo

Megha M. is a content editor who loves to play with words. Apart from this, she is a theater artist and a public speaker who transforms into various personas on stage.

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As per recent surveys, 17% of American adults have at least once cosigned a mortgage. Adults with an annual income of over $75,000 have cosigned 24% of mortgages.

A cosigner is an individual who shares the responsibility to repay the debt, to the lender, if the primary borrower defaults.

So if you want to buy a house with bad credit. Look for a co-signer for your mortgage and get your dream home.

Co-Signers Help Borrowers Get Their Loan APPROVed

  • Any close associate of the primary borrower with a good credit score can sign a mortgage.
  • If you are unable to find a co-signer for your mortgage, you can look for government backed loans and assistance programmes.
  • Lenders usually approve family members as cosigners.

Who is a Mortgage Cosigner?

A mortgage co-signer is a person who signs a loan agreement along with the primary borrower. Co-signer takes responsibility for debt repayment along with the primary borrower.

Remember, a mortgage co-sign is a legally bound contract and not just a loan reference. Hence, a co-signer has to bear the repercussions, in case the primary borrower defaults.

Co-signer vs. Co-borrower

Co-signer and co-borrower serve the same purpose in a loan agreement, that is, to help the primary borrower get a loan approval. Though the purpose is the same, legally both hold different positions and responsibilities.

Here are the main differences between the two:

1A co-borrower will have their name on the property’s title. A co-signer will be named in the loan agreement only.
2A co-borrower has to be a home occupant or a family member, someone who lives in the house.A co-signer could be any known person to the primary borrower, responsible for repaying the loan if they fail.

Cosign Mortgage Process

Let’s look at the step-wise process of getting your mortgage co-signed:

  1. Find a co-signer: First and foremost, look out for a close associate who has a good credit score. It can be your parents, spouse, or a close friend.
  2. Find a suitable mortgage plan: Look out for a mortgage plan that complies with your financial situation. Thoroughly read the terms and conditions of the agreement. Make sure you plan your finances in a way that you are able to consistently pay your monthly installments.
  3. Compile the required documents: After you get the co-signer’s consent and finalize your mortgage plan, start the documentation of your loan. Start with your co-signer’s approval letter.
  4. Take full responsibility: Although, the co-signer undertakes the responsibility of your loan repayment. You have an ethical responsibility to be consistent with your monthly payments so your co-signer faces no harm because of you.

Co-signer Requirements

A co-signer gets approval on the basis of certain minimum requirements, both in a conventional loan and FHA loan. Below are the general co-signer requirements:

  1. Credibility: Co-signers must have a good credit score to demonstrate their ability to repay the loan.
  2. Stable income: Co-signers are required to have a stable source of income.
  3. Debt-to-income ratio: If you are to apply for a conventional loan, both you and the co-signer’s debt-to-income ratio will be considered.
  4. Legal age: Co-signers must be 18 years or older, to be eligible to sign mortgage papers.
  5. Trustworthiness: Co-signers must be a trustworthy person who intends to repay the debt.
  6. Citizenship or residency status: Co-signer must be a US citizen.

Co-signer Responsibilities

Here we will list for you the steps your co-signer should take to safeguard their interests:

  1. Must maintain separate funds, so that, they can pay the lender if the primary borrower defaults.
  2. Make sure that the primary borrower has the means to pay the monthly mortgage payments.
  3. Ask the primary borrower for access to the mortgage statements.
  4. Enquire from the lender if the primary borrower is regular with their payments.

Benefits of A Co-signed Mortgage

The benefits of a co-sign mortgage include:

  1. Higher chance of approval: A co-signer with a strong credit score and financial history can increase your chances of loan approval.
  2. Lower interest rates: If the co-signer has a good credit score, the lender may offer a lower interest rate on the mortgage loan. This results in lower monthly payments and a lower mortgage cost.
  3. Larger loan amount: With a co-signer, the primary borrower may qualify for a larger loan amount.
  4. Faster loan approval: With a co-signer, the loan approval process may be faster, as the lender adds assurance of timely payments.

Drawbacks of A Co-sign Mortgage

A co-signed mortgage can have these drawbacks:

  1. Financial risk: Default payments by the primary borrowers can result in significant financial hardship for the co-signer. Co-signer would be required to make loan payments which he did not directly benefit from.
  2. Negative impact on credit score: Late and default payments can negatively impact the credit score of the co-signer. This would make it difficult to obtain any future credits.
  3. Strained relationships: A cosigned mortgage loan can put a strain on the relationship between the co-signer and the primary borrower. If the primary borrower is unable to make payments, it can lead to a conflict between the two.

What Are The Alternates For A Co-sign Mortgage?

If you are unable to find a co-signer for your mortgage, you still can buy a home. Here are the alternatives for you:

1. Look for Government Loans

In addition to FHA loans, you can explore other government-backed loan options. These loans usually have lower requirements. Even with a lower credit score, you can be eligible for these loans.

These loans usually are government-insured and, thus less risky for lenders. So, explore these options and advisably consult a professional.

2. Sign up for The First-Time Home Borrowers Programme

State and Federal governments have assistance programs for first-time home buyers. They aid new home buyers with down payment assistance. The Department of Housing and Urban Development (HUD) assists in this program.

Bottom Line

A mortgage cosigner plays the role of a savior for a buyer with a bad credit score. But it’s important for a cosigner to weigh the risks attached to it.

For both the primary borrower and the co-signer, it’s important to cautiously go ahead with the mortgage agreement. Before you proceed keep in mind the above said benefits and drawbacks.

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Is co-signing a mortgage a good idea?

You may want a co-signer because you have a bad credit and want to use your close associate's good credit rating to get a mortgage.

What credit score is needed for a co-signer?

You may need 580 for a FHA or VA loan and 620 for a conventional loan.

Does mortgage co-signer have to be on title?

Though a co-signer applies for the home loan with you. However, they are not on the title of the home.

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