Today we will be discussing the key differences between a mortgage co-borrower and a mortgage co-signer.
Although both phrases sound quite similar, and sometimes they are used interchangeably. But there are important differences that you should take into account as well.
in any case Having an additional borrower or co-signer is likely to make it easier for you to qualify for a home loan.
Instead of relying solely on income, assets and credit You can ask your spouse or family member for help.
This may make you eligible for a larger loan amount. hinder lower interest rates Or even win a bidding war through a stronger offer.
What is a mortgage co-borrower?
A co-borrower is a person applying for a home loan together with the primary borrower.
It is usually a married couple who will live in the subject property. As a result, they share financial responsibilities and ownership. And both have their names in the title.
For example, a couple may decide to buy a home. They apply together as co-borrowers.
This helps them put their income, assets and credit history together. Ideally, they make them stronger in the eyes of lenders and home sellers.
This can mean the difference between an approved or rejected loan application. and even winning or losing bids on properties.
Imagine a home seller deciding between two competing bids and their real estate agent.
They will go with borrowers who are just exploiting their finances. or a married couple with two good jobs two jobs stable income Stable aggregate assets Deep credit history, etc.
Talk about two incomes. can help you get more home.
What is a mortgage co-signer?
A mortgage co-signer is a person who acts as a mortgage guarantor and is responsible for paying it back if the borrower fails to do so.
in the sense that, The cosigner acts as a safety net.and not an enthusiastic participant
This means they don’t make monthly payments and don’t live on the subject property.
More importantly, they have no interest in the property. However, they share liability with the borrower.
To be honest, they get all the bad stuff without the good stuff. that is ownership
But the purpose of the co-signers is to help others. So it’s not about them. A typical example is a parent signing a petition to help a child. buy a house.
Both income and credit history can come in and help your child. Approved for a mortgage.
For the record, anyone with an interest in ownership of the property cannot be a co-signer. This includes home sellers. real estate agent or home builder That would be a conflict of interest.
Mortgage Co-Borrower and Mortgage Co-Signer
What is the impact of credit scores for co-borrowers and co-signers?
as a co-signer You are responsible for the loan for the entire term. or until repaid through a refinance or sale
This means that information will be on your credit report. and any negative activity (delayed payment foreclosure) in connection with the mortgage will be forwarded to you.
There is also credit inquiryAlthough these tend to have little effect.
However, it is possible that paying your mortgage on time can help you get your loan over time. experience.
The other issue is that it may limit your ability to borrow if you are applying for a loan even if you do not make payments.
Its presence can make it more difficult to secure your new credit line or loan. Including your own mortgage, if desired, because DTI limitations.
If you are a co-borrower on a mortgage The credit impact is the same as if you were the sole borrower. Loan inquiries will be made when applying for a mortgage.
And the loan will go on your credit report if/when approved. And payment history will be reported over time.
Paying on time can increase your score. while missed payments may lower your score.
What about co-borrowers who are not tenants?
You may also come across the words “Non-possession co-borrower” is a name that refers to the person on the loan who does not own the property.
Moreover This person may or may not have an ownership interest in the subject property. Fannie Mae.
This is unlike a co-signer who has no ownership interest as stated in the title.
But both must sign the mortgage or title deed and will be jointly liable with the borrower.
For FHA loans, the co-borrower who does not possess is allow as long as they are a family member with their primary residence in the United States.
If not a family member or for real estate 2-4 units, a down payment of 25% is required (Up to 75% LTV).
Either way Non-occupied co-borrowers will have ownership of the property. Unlike non-possessed co-signers
Please note that the non-occupant co-signer or co-borrower not allowed in USDA loan
And for VA loans, the co-signer must be a spouse or active duty/veteran living on the property.
Most lenders do not allow joint borrowers who are not VA loans, even if they are “joint loans.” may be one option.
When co-borrowers should not be used for mortgages
believe it or not There are times when using a co-borrower can do more harm than good.
The most common example is when a prospective co-borrower has bad credit. or even additional credit
This is because mortgage lenders tend to take into account the entire borrower’s credit score. Take the two lower middle scores.You wouldn’t want to add someone with questionable credit. (unless you really have to)
For example, let’s say you have a FICO score of 780 and your spouse has a FICO score of 680. You plan to apply jointly because they are your spouse.
But then you’ll find that the mortgage lender will qualify you at the 680 score that pushes you. mortgage rates Way up.
In this case, you may not want to use a co-borrower. Unless you need them for income purposes.
They can also own and own the property without borrowing.
How a Co-Borrower’s Higher Credit Score Can Make You Eligible for a Home Loan
Latest Fannie Mae established A new way to determine eligibility when co-borrowing
They add up each borrower’s average score and divide by two (mean).
For example, suppose Borrower 1 has scores of 600, 616, and 635. They often take scores of 616 and tell the borrower that they are not good enough for financing.
Now let’s assume there are co-borrowers (borrower 2) with FICO scores of 760, 770, and 780.
Fannie Mae now adds up the two median scores (770+616) and divides them by two. This will result in an average credit score of 693.
This allows borrowers 1 to meet Fannie/Freddie’s minimum 620 credit score requirement (for corresponding credit).
Please note that this is just a qualification and only if there is a co-borrower. and does not apply to RefiNow loans or self-guaranteed loans.
In addition, the price (and mortgage insurance if any) is still determined by a representative credit score (616).
you have common qualities But mortgage rates can be steep based on lower credit scores used for pricing.
Note that some lenders may not allow borrowers with credit scores below 620 regardless of these guidelines.Lender Overlay).
How to remove a mortgage co-borrower or co-signer
Although it may be a good idea to have a mortgage co-borrower or co-signer. But they may want to leave at some point.
There are a number of reasons that could be divorced and could drain your credit.
Fortunately, this can be done quite easily through Traditional mortgage refinancing.
The caveat is that you must qualify for a new home loan without them. You also want the mortgage rate to be satisfactory at that time as well.
Ultimately, you don’t want to trade a low-rate mortgage for a high-rate mortgage just to remove the borrower or co-signer.
A common scenario might be young homebuyers who need early financial help. But now I’m flying solo
They can refinance and alleviate the potential financial strain/burden of the co-signers and eventually stand on their own.
Alternative to co-borrower/co-signer
If you are unable to find a co-borrower or co-signer of the loan with you There may be other options.
First, determine what the problem is. Whether it’s a low credit score, limited income, or inadequate assets.
People with low credit scores may want to consider improving their score before applying. In addition to making approvals easier, You are also entitled to a much lower interest rate.
Those who lack income/assets can look for options that require little or no down payment.
There is also Fannie Mae HomeReady and Freddie Mac Home are possible.Both of which require only a 3% down payment and allow boarding student income. (roommate) qualified
Or inquire about grants and down payments through your local lender or state housing agency.
There are many mortgages that require a small down payment and almost nothing in terms of assets/reserves.
You may consider lowering your maximum purchase price if these issues persist.
Another option is to use gift fund to reduce your LTV ratio and loan amount This will make it easier to qualify for a mortgage.