Mortgage Co-Borrowers and Co-Signers
Co-Borrower or Co-Signer… That is the Question
Not everyone can be approved for a home loan on their own. Whether it’s due to poor credit, lack of credit, a high debt-to-income (DTI) ratio or a foreclosure/short sale, a co-borrower or co-signer may be necessary to qualify for a mortgage.
It can be easy to assume that the terms co-borrower and co-signer are synonymous, but they aren’t. It’s important to know the difference. Both can help a potential borrower qualify but in turn, they have different responsibilities and associated risks. Keep these differences in mind when considering a co-borrower or co-signer for a mortgage.
Co-borrowers are often spouses, partners, or parents of the borrower. They contribute their income and credit history to qualify for a larger mortgage than could be obtained with only one borrower. Most of the time co-borrowers have ownership of the property and their name on the title just as the borrower does.
The co-borrower also shares equal responsibility for the mortgage with the borrower. This means if the home is foreclosed, their credit score and financial stability is on the line just as a borrower’s would be. On the other hand, if payments are made on time and credit goes up, or the home equity increases, this benefit is shared between borrower and co-borrower.
A co-signer (also called a guarantor) is different from a co-borrower in that a co-signer takes responsibility for the debt if the borrower defaults on the loan. To be clear, they have no ownership in the property. A co-signer’s income, assets, liability and credit history are considered when determining the loan approval.
The co-signer generally doesn’t have to pay on the mortgage every month. They would be held accountable if the mortgage went into default. They’re basically backup for the borrower.
If the borrower is single and is required to have a co-signer for their mortgage, it would make sense for that person to be a parent, family member or partner. It should be someone the borrower trusts, and someone who trusts the borrower.
It also helps to establish trust by drawing up an enforceable contract between the borrower and potential co-signer. The document would specify the rights and responsibilities of each party; who will occupy the home, maintain the property, pay bills, etc. Discuss this with the title company and an attorney to have the documents reviewed before purchase.
Co-Borrower or Co-Signer
Both co-borrowing and co-signing are viable options if the necessary for the purchase of a home. Both also have risks which need to be understood before the papers are signed.
If you have any questions or would like more information, contact PRM today!co-borrow, co-borrower, co-sign, co-signer, First-Time Homebuyer, home buyer, Home Financing, homebuyers, homebuying, Millennial, Millennial Homebuyer, Mortgage, Mortgage Financing, Pacific Residential Mortgage, PRM, Real Estate