Getting a Mortgage with A Co-signer
Getting a mortgage can be tricky. And getting one with a co-signer can be even more problematic. However, understanding the requirements, including the minimum credit score for a mortgage with a co-signer, can help you make a more informed decision.
A co-signer can increase your likelihood of being approved for a mortgage, allowing you to fulfill the dream of purchasing a new home. But there are several factors to consider, including the credit scores of both the primary borrower and the co-signer.
This article will cover the role of co-signers, what you need to know about credit scores, and how to navigate different types of mortgages. We’ll also provide valuable insights to help you understand what it takes to secure a mortgage with a co-signer.
What is a mortgage co-signer?
A mortgage co-signer is an individual who agrees to share the responsibility of a mortgage loan with the primary borrower. This arrangement assures the lender repayment of the loan. This person typically has a strong credit history and sufficient income to qualify for the mortgage.
By co-signing a mortgage, the co-signer helps the primary borrower qualify for a larger loan amount or better interest rates, often enabling them to purchase a home they could not have afforded alone. They take legal responsibility for the loan and are bound to make payments if the primary borrower fails to do so.
What’s the difference between a co-signer and a co-borrower?
A co-signer and a co-borrower are both individuals who agree to be legally responsible for repaying a loan. A co-borrower has equal involvement with the primary borrower in the loan, becomes listed on the property’s title, and is considered a co-owner of the financed asset.
On the other hand, a co-signer guarantees a loan for another person but does not have an ownership interest in the property. The Co-signer is a backup for the primary borrower and only steps in to make payments if the primary borrower cannot repay the loan.
Whose credit score is used when co-signing for a mortgage?
When co-signing for a mortgage, the lender uses the primary borrower’s and the co-signer’s credit scores in the approval process. Mortgage lenders will typically consider the lower median score, or the middle value from the three credit bureaus, between the two loan applicants.
What’s the minimum credit score for a mortgage with a co-signer?
Co-signers can be invaluable assets to those with lower credit scores looking for mortgage loans. Having a co-signer assures lenders that the loan will be repaid even in case of default by its primary beneficiary.
But when the primary borrower has an unstable credit score, this begs the question of the minimum co-signer requirement for mortgage loans.
The minimum credit score for a mortgage with a co-signer typically depends on the lender’s requirements and the type of loan. However, a general guideline is that the co-signer should have a minimum median credit score of 580 or higher.
Can co-signing for a mortgage hurt your co-signer’s credit score?
Yes, co-signing for a mortgage can potentially hurt your co-signer’s credit score.
When you ask a family member or friend to co-sign a mortgage, their credit report will reflect the hard inquiry and list the mortgage as part of your total outstanding debt. Suppose you, as the primary borrower, consistently make timely payments. In that case, your credit score will remain unaffected or may benefit from a positive payment history.
However, missed payments or default occurs on the mortgage loan. In that case, their credit score will drop significantly due to the negative information on their credit report.
Additionally, a co-signed mortgage on their credit report may inhibit their ability to receive new credit or loans as quickly since future lenders may view co-signing as an increased risk.
When to Seek a Co-signer for a Mortgage
Deciding if you need a co-signer to get a mortgage for a new home can be complicated and confusing. If you’re unsure you’ll need a co-signer when you apply for a mortgage, consider whether the following financial circumstances apply to your situation.
You have a low credit score, below 650. If you have a history of missed payments or high credit card balances, your credit score might need to be higher to get approved for a mortgage.
Your debt-to-income ratio, the amount of debt you have compared to your income, is too high. In this case, mortgage lenders might consider you a risk and deny your loan application.
You have a lack of credit history.
How to Find a Co-signer
Finding a co-signer to help you qualify for a mortgage for a new home can be difficult. However, it’s worth pursuing because it can make a difference in loan approval and a better interest rate.
Consider the following options as you search for someone to be your co-signer.
Look within your immediate family. Parents, siblings, and even grandparents might be willing to co-sign a mortgage for you.
Have a close friend? Check whether they have a good credit score and a low debt-to-income ratio. If so, they may be willing to co-sign for you.
Approach your employer. If your employer is willing to co-sign for you or provide proof of income to show to the lender, this might help you get approved for a mortgage.
Find a co-signer who is financially responsible, has good credit, and is willing to take on the responsibility. Approach this person for help.
Remember, when someone co-signs a mortgage, they take on responsibility. If you fail to make payments, the co-signer must make them. This risks damage to their credit score.
Alternatives to Using a Mortgage Co-signer
If you can’t find a co-signer for your loan, you still have the following options.
Apply for FHA or VA loans. These government-backed loans have lower requirements to help first-time homeowners and borrowers struggling to qualify for conventional loans.
Look into home-buying assistance programs your state or local government provides. HUD provides a directory to help you locate a program in your area.
Consider agreeing to mortgage insurance, which protects lenders from financial losses and enables them to offer loans to borrowers who may not have the resources to make a sizeable down payment.
Co-signer Requirements for Different Types of Mortgages
While a co-signer can improve the chances of securing a mortgage, it does not guarantee approval. When evaluating the mortgage application for a conventional loan, lenders will look at your and your co-signer’s income, employment history, and debt-to-income ratios.
The United States Department of Agriculture (USDA) guarantees loans designed to help low- to moderate-income borrowers in rural areas purchase homes.
To qualify for a USDA mortgage loan, the co-signer and the primary borrower applicant must be U.S. citizens or permanent residents, have a reliable source of income, meet the income requirements for the county where they purchase a home, and have a credit score of at least 640.
A co-signer may not necessarily improve the primary borrower’s chances of getting approved for a USDA mortgage loan if the primary borrower can’t meet the eligibility requirements independently.
Insured by the Federal Housing Administration, FHA mortgage loans provide an excellent option for first-time homebuyers who need assistance financing their homes.
In some cases, borrowers may need to enlist the help of a co-signer to qualify for an FHA mortgage loan. Unfortunately, however, only some are eligible to become a co-signer.
FHA mortgage loan co-signer requirements mandate that co-signers are trustworthy individuals with good credit scores willing to take on the loan liability if the borrower defaults. Additionally, the co-signer must be a close family member or friend with a vested interest in the borrower’s success.
The Department of Veterans Affairs offers these mortgage loans to veterans, active duty service members, and some surviving spouses.
Having a co-signer for a VA mortgage loan may make it easier to get approved. But all applications are considered on a case-by-case basis.
A co-signer must meet the following requirements for a VA mortgage loan.
A close relationship with the borrower, typically a family member or spouse
Willing to assume liability for the mortgage
Ensure a stable income and good credit history
The Bottom Line on Getting a Mortgage with a Co-signer
Using a co-signer can be a beneficial solution to help you qualify for a mortgage and fulfill your home ownership dreams. However, it requires careful consideration, communication, and responsibility to ensure a successful outcome for all parties involved.
While having a co-signer can increase the likelihood of loan approval and potentially secure more favorable interest rates and terms, it’s not a guarantee. Lenders will still evaluate the financial history and capability of both the borrower and co-signer and may require additional documentation or collateral.
Also, both mortgage applicants must fully understand this arrangement’s implications and responsibilities before entering it. Being a mortgage co-signer comes with potential risks, including the co-signers credit score becoming adversely affected.
As such, it’s in your and your co-signer’s best interest to seek professional guidance from a trusted mortgage advisor, attorney, CPA, or financial institution before proceeding.