Co-Signing A Mortgage

A little-known way to help you obtain a mortgage is having a co-signer on your loan application. Co-signing a mortgage is a great way to help a family member or friend buy a home or refinance a current mortgage. Below I’ll cover what a mortgage co-signer is (aka a non-occupying co-borrower), the differences between a co-signer vs. a co-borrower, the underwriting requirements for a co-signer, and more.

What is a co-signer?

A co-signer for a mortgage loan is someone who agrees to help a primary homebuyer (or homeowner) get qualified for a home loan and accepts financial responsibility for that loan if the primary homebuyer (or homeowner) can no longer afford the payment.

Co-signing a mortgage may help a homebuyer (or homeowner) obtain an underwritten loan approval since an additional person(s) is added to the loan to reduce the overall risk associated with the loan application.

Non-occupying co-borrower.

Another term for co-signing a mortgage is a non-occupying co-borrower. A non-occupying co-borrower is the technical term for someone co-signing a mortgage and is the more common term within the mortgage industry.

The mortgage industry uses the term non-occupying co-borrower rather than co-signer because the person who is co-signing a mortgage does not live in the property. Hence the term “non-occupying.”

What Is The Difference Between A Co-Signer vs. A Co-Borrower?

Here are the main differences between a co-signer vs. a co-borrower. A co-signer does not live in the home, and a co-borrower does. Also, a co-signer typically has no financial ownership of the property, while a co-borrower usually does.

Who Can Be A Co-Signer?

As long as a person is qualified to be a co-signer on a mortgage, there are no restrictions on the relationship between you and the co-signer under the Conforming home loan program. The co-signer could be a parent, a sibling, a relative, a friend, or a co-worker.

The rules for a co-signer under the FHA home loan program are slightly different; more on this below.

Co-signing a mortgage underwriting requirements

Co-signing a mortgage underwriting requirements will vary from loan program to loan program. And programs like USDA home loans and VA home loans do not allow a co-signer. Also, bank statement mortgages typically do not allow for a co-signer.

The two main loan programs that allow a co-signer are Conforming home loans (Fannie Mae and Freddie Mac) and FHA home loans.

Conforming Underwriting Requirements

Co-signing a mortgage is allowed under the Conforming home loan program. Typically, the co-signer needs a debt-to-income ratio below 45% and a credit score above 620. When it comes to the loan-to-value ratio (LTV), there are no restrictions. You can have an LTV at 97% or lower when you have a co-signer.

• Cash-out refinances are allowed with a co-signer
• Citizens and legal residents are allowed
• The co-signer does not need to be a relative

FHA Underwriting Requirements

Underwriting requirements for a co-signer on an FHA home loan differ slightly from the Conforming home loan program. The co-signer needs a credit score of 580 and must be a citizen and a relative. Co-signer cash-out refinances are not allowed under the FHA home loan program.

Important insider tip about co-signers and the Conforming and FHA loan program; if your co-signer has a lower credit score than you, underwriting will use your co-signer’s credit score. So ensure that your co-signer has the same or higher credit score before entering underwriting; otherwise, your mortgage rate might be negatively impacted.

What does a co-signer need to provide?

The information and documentation a co-signer needs are similar to that of the primary borrower.

Information Needed When Co-Signing A Mortgage

• Name, address, email address, and telephone number
• Social security number and date of birth
• Employment information (or how long they’ve been retired)
• Income and asset numbers
• If they own additional property, the key info on each property

Documentation Needed When Co-Signing A Mortgage

• Income and asset documents
• If they own additional property, then a mortgage statement and homeowners insurance declaration page for each property owned. If a property has an HOA, then documentation from the HOA showing the monthly amount due

For a more in-depth review of the documentation needed, please see;

• Documents needed to buy a home
• Documents needed to refinance a mortgage

Also, it’s important you have a discussion with your loan officer about what their underwriter wants from the co-signer. Lender requirements may differ from one lender to the next.

How Do I Get An Approval With A Co-Signer?

The process of obtaining an approval with a co-signer is similar to when a loan application does not have a co-signer. The only difference is in the initial stage, where you and the co-signer prepare for the initial loan application.

After that, it’s the same process. Once the loan officer has a completed file, they will submit everything to the underwriter for an initial review.

What Are The Alternatives To Having A Co-Signer?

There are alternatives to having a co-signer on a mortgage application. My first suggestion is to consider an FHA home loan or, if you are a veteran, a VA home loan. These loan programs have flexible underwriting guidelines, especially for first-time homebuyers.

Also, it would help if you researched your downpayment assistance options. In some areas, a homebuyer may qualify for government assistance with their downpayment. Also, a family member can “gift” your downpayment or part of the downpayment.

Pros and cons of co-signing a mortgage

Here are the pros and cons of co-signing a mortgage.

Co-signing a mortgage faqs

Here are some FAQs about co-signing a mortgage.

I have a low credit score; will a co-signer with a higher credit score lower my rate?

No. A co-signer will only help you get an approval, not a lower rate. Underwriters use the lowest middle score of all the borrowers on the loan application, including the non-occupying co-borrower. So if you have a 660 credit score and your co-signer has a 740 credit score, the underwriter will use the 660, not the 740.

Can I have more than one co-signer?

Absolutely. Let’s say you want both of your parents to co-sign; not a problem that is allowed. Co-signing a mortgage is not limited to just one person; you can have multiple non-occupying co-borrowers.

Am I responsible for my co-signers debts?

No. Just because the co-signer adds your debt to their financial obligations does not mean you are adding any of their debt to your financial obligations.

Can the co-signer contribute to the down payment?

Under most circumstances, the person co-signing a mortgage can contribute towards the down payment. You’ll want to double-check with your loan officer to ensure you meet the necessary underwriting guidelines for down payment contributions from non-occupying co-borrowers.

Can a co-signer be removed from the mortgage once my finances have improved?

The only way to remove a co-signer is to pay off the existing mortgage. There are three options; pay off the balance with cash on hand, refinance to pay off the current balance and remove the co-signer, or third option is to sell the home to pay off the original mortgage.

Should you consider a co-signer?

If you have trouble getting qualified for a mortgage, consider a co-signer. There are two great home loan programs, Conforming and FHA, that allow for someone to help with co-signing a mortgage, and getting qualified under these programs is a relatively straightforward process.

Be sure to talk with your loan officer about the pros and cons of having a co-signer and what their requirements are for non-occupying co-borrowers. If you think it makes financial sense and have someone willing to co-sign, then I suggest you consider having one.