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What Is Cosigning A Mortgage
Cosigning on a mortgage is when you agree to be responsible for a loan and contribute your financial resources to help someone else get a home loan. Youll provide financial documents, have your credit pulled and sign the loan paperwork.
In most cases the cosigner wont actually enjoy any benefits of owning the home they simply provide financial support to the person who will live in the home full time. Family members are often cosigners. Some lenders may also use the term non-occupant borrower which refers to the fact that most cosigners dont live in the home they cosign on.
What Makes A Good Co
Income and credit history are the most important things that mortgage providers will look for when considering a co-signer. While your co-signer having a high net worth or lots of home equity might help, your lender will mostly care that they can make your payments for you if youâre not able to. The most important indicators for that are your co-signerâs regular income and their credit score, which indicates their overall creditworthiness.
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What Can We Do For You
Deciding whether you need a cosigner is a big decision. At Mares Mortgage, we want to help. Call 949-489-8300 to talk to one of our team members who can help you determine if a cosigner is necessary.As the #1 trusted mortgage lender in Orange County, California, offers several tools to assist you in the mortgage application process. Whether youre a first-time homebuyer or buying your second home, we can help you get a pre-qualification certificate within minutes.
How A Cosigned Mortgage Loan Affects Your Credit
If the primary borrower makes the loan payments on time, that information might or might not show up on your credit report. It depends on the creditor. Not all of them report to cosigners’ credit reports when payments are made on time. Cosigning a loan could help your credit if the creditor reports that the primary account holder is managing the account responsibly, making on-time payments, and the new account adds to your . But even if the creditor reports the payments to the major reporting bureaus, you’ll likely only get a slight benefit to your credit scores. Because you were a worthy cosigner, you probably don’t need more positive notations on your credit report to boost your scores.
In fact, you’ll probably see a temporary reduction in your credit scores when the lender first pulls your credit before approving the mortgage loan that you’re cosigning. This hard inquiry will ding your credit, and so will the increase in your overall debt load credit bureaus factor in loans that you cosign for as a debt obligation when figuring your credit scores. Cosigning a mortgage loan can raise your total debt balance and reduce your credit scores accordingly.
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What Should You Look For In A Co
When looking for a co-signer for a personal loan, here are some qualities to keep in mind.
- Good credit. A co-signer who has good to excellent credit is more likely to meet a lenders minimum credit score requirements. The higher the co-signers credit score, the lower your interest rate might be.
- Solid income. Some lenders have minimum income requirements. To increase your chances of getting approved, find someone who meets the income needed for approval.
- Low debt-to-income ratio. If you can, try to find a co-signer who doesnt have a lot of debt relative to their income. Lenders sometimes have minimum DTI ratio requirements the total debt you owe versus your monthly gross income. For example, if your monthly debt is $1,000 and your gross monthly income is $2,000, then your DTI ratio is 50 percent.
How To Pay Down Your Student Debt
If you don’t qualify for PSLF or other student loan debt forgiveness, there are ways to pay down your student debt aggressively.
If you currently have public student loans, it’s widely agreed to keep your loans within the federal student debt system for now. As long as you have a 0% interest rate, and the looming possibility of government-enacted forgiveness, there’s no harm in leaving your debt there for the time being. In fact, it may be a good idea to pay it down so all of your money goes towards the principal, rather than interest.
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Who Can Be A Cosigner On A Car Loan
Often, a cosigner is a close family member or friend. However, anyone can be a cosigner if they meet the lenders requirements. This means your co-worker, parent, close friend, or even an acquaintance could be your cosigner and help you meet the credit score stipulations of an auto lender.
The tough part of getting a cosigner, though, is finding one with a good enough credit score whos willing to risk it for you. Because a cosigner’s credit is in your hands when they take on a loan with you, many people are hesitant to sign that dotted line.
How Much Will A Cosigner Help Me Get A Mortgage And What Are The Requirements
So, how does getting approved for a mortgage with a cosigner make a difference? While it doesnt necessarily make the process easier, it may well help your chances of mortgage approval.
This mainly comes down to who it is thats offered to co-sign and their personal circumstances. For example, a close blood relative with a good debt-to-income ratio and clean credit history could make your chances of acceptance far stronger.
On the other hand, a more distant relative, or getting a mortgage with a cosigner who has bad credit history may not improve your chances at all. In fact, it could be declined or detrimental to your application, as it could restrict your options with lenders further.
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What If The Co
If someone in better financial shape than you cosigns your mortgage, that often works out great. With your cosigner’s credit and income backing you up, you may become a much better prospect for a good deal from your lender. That includes not only a better interest rate but a larger mortgage, as a cosigner can give you a better debt-to-income ratio.
Having a co-signer potentially allows you to make a bigger monthly house payment, which translates to affording a bigger house. The actual amount you’ll quality for is calculated based on the metrics of your income and debt plus your co-signer’s income and debt, which can also vary among lenders and different mortgage products.
How A Mortgage Cosigner Can Help You Get Approved For A Home Loan
When your income, savings, or credit history falls short, adding a cosigner to your mortgage application can give you the boost you need to reach your goal of homeownership.
Much like a cosigner for a car loan or credit card, a mortgage cosigner contributes their good credit and financial history to your home loan application, helping you qualify for a loan when you would otherwise be denied on your own.
Check out our guide below to learn how to use a cosigner to get approved for a home loan.
Consider adding a cosigner to your mortgage when you want to buy a home but suspect you may not qualify for the loan by yourself.
Maybe you can’t afford the payments because your income is too low. Perhaps your income is enough to qualify for the home, but your debts are too high. Your credit history could be limited, or you might need some help with a down payment and closing costs.
No matter the reason, the last thing you want to receive is a denial letter from the mortgage lender just days before your closing. Plan so that you’re not left scrambling to finance your home last minute. Find out if you qualify for the loan on your own or if you’ll need to ask someone to cosign before you start shopping with a real estate agent.
A mortgage pre-approval is crucial, especially for first-time buyers. Interview a few mortgage lenders when you’re within 120 days from the date you hope to buy a home. Choose a home loan expert — a professional with knowledge and experience to:
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Advantages Of Adding A Cosigner To A Mortgage
There are several benefits to adding a cosigner to a home loan:
- Qualify more easily: The most obvious benefit of cosigning a mortgage is that the primary borrower has a better shot at qualifying. Lenders may deny hopeful homebuyers who can afford the monthly payment but have insufficient credit, a high DTI, or changed careers. Cosigners with good credit, long-term employment, and a low debt balance can help secure mortgage approval.
- Can have self-employment income: Its harder for self-employed borrowers to qualify for a mortgage. If you earn traditional income reporting on a W-2 tax form, cosigning the loan can help satisfy the lenders income history requirements.
- Get a lower interest rate: In addition to qualifying for the loan itself, your high credit score or annual income may help the borrower qualify for the best mortgage rate.
- Parents can get more privacy: By cosigning your childs mortgage, you as the parent can gain more privacy at home. Being an empty nester also gives you the ability to sell your house and downsize.
Speak To A Specialist For Advice About Having A Co
Having a co-signer on your mortgage can help push your mortgage application through the approval process if your financial situation isnt ideal, but its not always the right route to go down and shouldnt be taken lightly.
The whole-of-market brokers we work can offer you bespoke, impartial advice and advise you on the best route to go down.
So give us a call on 0808 189 2301, or submit an online enquiry and one of the experts will be in touch.
We only work with 5* accredited advisors, we dont charge a fee, and theres absolutely no obligation on your part.
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When Your Credit Is Mediocre
In this situation, we’ll consider “mediocre credit” to be a below 660. That’s not a bad score, but it’s too low for some conventional loans with moderate down payments and low interest rates. If your credit score falls in this range, you might get a lower rate or a better loan with a cosigner.
What if your credit score is much lower? If your credit is below 580, many lenders could refuse you even with a 10% down payment and cosigner. Bad credit can’t necessarily be saved by a cosigner or co-borrower. If your credit score is low, you might want to check out our list of best mortgages for bad credit.
Also, note that your credit score is not the only thing underwriters look at. The following factors in your credit report may be evaluated as additional risk:
- If your credit history is newer. If most of your credit lines are two years old or younger, you might need a cosigner. This doesn’t just affect people who are young and just building credit for the first time. Closing old credit cards zeroes out those lines of credit and will erase that part of your credit history.
- If you don’t have many open credit lines. Having only one or two credit cards is actually problematic when applying for a mortgage.
- If you’re using most of your available credit. Lenders want to see your at or below 30%, at least when it comes to your credit card balances.
- No history of having paid a large ongoing payment. If you’ve never had an auto loan or other home loan, you might benefit from a cosigner.
Apply For A Government
Conventional loans have stricter qualifications, including higher credit score and down payment requirements. Government-backed mortgages, on the other hand, have more lenient credit score requirements and are generally easier to qualify for.
Here are three options to consider if youre working with a buyer struggling to secure a conventional mortgage:
- FHA loans: Most borrowers need a minimum 580 credit score, a down payment of at least 3.5%, and a DTI no higher than 50% to qualify for an FHA loan. Borrowers with a credit score as low as 500 can qualify if they meet several FHA requirements.
- VA loans: While VA-backed purchase loans are only available to qualifying service members, veterans, and spouses, these loans dont require a down payment or private mortgage insurance. Mortgage rates can also be lower than those from private lenders.
- USDA loans: The U.S. Department of Agriculture backs loans for qualifying households living in eligible rural areas. No down payment is necessary and the mortgage insurance premiums can be lower than FHA loans.
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The Advantages Of Cosigning
The main reasons why some borrowers have a cosigner on their mortgage are to either help them qualify or to get better terms.
A cosigner can add more income to the application to help with qualification. Sometimes borrowers choose to get a cosigner due to having a stretch of unemployment. But depending on the lender, a cosigner cant always make your credit score look better. Many lenders use the lowest middle credit score among all the borrowers on the mortgage application.
» READ MORE: Why do you have several different credit scores?
Even if you can qualify for a mortgage, you may not score the best terms. Your lender may require you to make a larger down payment than you can afford or your interest rate may be higher than youd like. Cosigners can help improve these kinds of terms.
What Happens If I Miss Payments With A Cosigner
If you do start to miss payments, the lender can ask the cosigner to pick up the slack. While the cosigner doesnt have any rights to the actual vehicle, they do have a responsibility to the auto loan.
If your cosigner is unable to help in the event of missed payments, then the lender usually starts the repossession process. Once a car is repod, its usually put up for auction with the intention of using the sale proceeds to cover the remaining loan balance. If the sale proceeds dont cover everything, then you and the cosigner are responsible for that deficiency balance. Additionally, the repossession is reported on both of your credit reports, which can be devastating to your credit scores.
On the other hand, if the auto loan is reported, which many car loans are, then the timely payments can boost both your and your cosigners credit scores.
If all goes well and you stay current on the loan, the cosigner may never need to step up and help. This is the ideal scenario: cosigner helps you get approved and you both see improvements in your credit score, then next time you need to get a car loan you may not need a cosigner because your credit score increased.
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Can A Cosigner Help Get A Car Loan
This site provides manually reviewed information about can a cosigner help get a car loan . Before applying for a loan, the most important thing is to know if there are hidden and unfair terms. The easiest way to do this is to perform a search for the keyword lender + unfair terms at Google.
Jun 06, 2018 ·The cosigners role is to help you get approved for financing. Lenders want to make sure the auto loan will be paid on time and in full each month, and having a strong cosigner helps your cause if you have poor credit or little or no loan experience. Make sure you ask a potential cosigner if theyre comfortable with this, because
Oct 14, 2021 ·Having a cosigner on your loan can sometimes help you secure more favorable loan terms. Basically, a cosigner agrees that if you stop making payments, they will step in to pay them. Your credit can have a major impact on your ability to get a good car loan .
Two Types Of Coborrowers
Rick Scherer, CEO of OnTo Mortgage, says there are two types of coborrowers.
An occupant co-borrower is someone who will purchase the home with you and live in the property as a primary residence.
A non-occupant co-borrower will not live in the property but will assist you in qualifying for the property, he says.
Although a nonoccupant coborrower isnt expected to make regular monthly payments, they are still considered responsible for the mortgage.
As Bruce Ailion, Realtor and attorney, explains, a coborrower becomes jointly and severally liable for the debt on the loan. If you as a borrower are not able to pay back the loan, the coborrower will be called upon to pay this debt.
with DKR Group LLC is the author of The Psychology of Credit. He says the coborrowers name appears on your loans documents and the propertys title.
This persons income and credit history are used to help you qualify for the loan, Smith says.
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