There are a number of reasons that could cause you to be turned down for a mortgage. Fortunately, a mortgage co-signer may be the extra boost you need to get you into your own home as soon as possible.
The most commonly accepted co-signers are parents or other close relatives. It’s also possible to have more than one person co-sign a mortgage. Ultimately, the lender must feel comfortable that the co-signer(s) will help lessen the risk associated with repaying the loan.
The benefits offered by adding a co-signer to your mortgage loan include:
1. Increased approval chances. If you have a lower credit score or limited credit history, a co-signer with a stronger credit profile can help you qualify for a mortgage. The lender may feel more secure knowing that the co-signer is backing the loan.
2. Added flexibility. If your income or debt-to-income ratio isn’t sufficient to qualify for the loan amount required, a co-signer can help strengthen the application. The co-signer’s financial backing may empower you to access a higher mortgage amount.
3. Easier qualification for first-time homebuyers. For first-time homebuyers or those with limited credit history, a co-signer’s established creditworthiness can help streamline the application process.
Before acting as a co-signer, it’s important to understand the risks. If the borrower fails to make payments, the co-signer is legally responsible for the debt. This can affect the co-signer’s credit and financial stability.
How does co-signing work? Co-signing can be set up a couple different ways. In one scenario, the co-signer can become a co-borrower. The co-borrower fills a similar role to that of a partner/spouse who’s buying the home with the primary applicant. Essentially, this involves adding the support of another person’s credit history and/or income to the application. The co-signer is placed on title for the home and the lender considers this person equally responsible for the debt if the mortgage goes into default.
Alternatively, the co-signer becomes a guarantor. The guarantor is backing the loan and vouching that you’ll pay it back on time. In this situation, the guarantor is actually responsible for the loan if it goes into default.
Have questions about mortgage qualification, co-signing options, or your mortgage in general? Answers are just a call or email away!