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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Co-Signer On Mortgage
Most people have a fair idea of how co-signing works when it comes to credit cards or car loans but for buying a home people think it is a lot more complicated because we are talking about hundreds of thousands of dollars worth of loan instead of a credit card.
However, it has some similarities and some differences and in this post, we are going to break it down and understand what is a co-signer on mortgage how it works.
What is a co-signer on mortgage?
A co-signer on mortgage means a person who is ready to take or share legal responsibility for your mortgage through a contract, in which, if you default, the lender has the right to ask the co-signer for the payments irrespective of whether the co-signer is occupying the property or not.
You should not feel guilty if you need a co-signer on mortgage. In some situations, it is what you have to do to get the job done.
When is a co-signer on a mortgage required?
There are three areas that need to be checked to be able to qualify for a mortgage. Your credit score, your income, and your debt to income ratio.
For co-signing, you need to make sure that one of these parameters is a hundred percent secure that is your credit score.
It doesn’t matter if you have a co-signer on a mortgage or not. You have to meet the minimum criteria of the credit score required by the loan program you are qualifying for.
Most of the time a co-signer for a mortgage is required for the borrowers who have a good credit standing, however, he may have some challenges to be able to qualify because his debt to income ratio doesn’t allow him to qualify for that much amount.
For example, it could be possible that you have a good income but high debts like credit cards or student loans, because of which you are unable to qualify for an amount that you are targeting to purchase a particular house.
Another thing could be that you don’t have many debts, however, you have a low income, maybe you are just at the beginning of your career and you might not be making as much as what is required to qualify for a specific amount.
In these situations, a co-signer for a mortgage is needed.
What are the types of co-signers for mortgage?
The co-signer for mortgage can be broken down into two categories.
However, before we break them down it is important for the co-signer to know the risk they are taking by co-signing and more importantly the requirement they still need.
If you are a co-signer you would still be required to be qualified for a mortgage just like the primary signer which is the credit score, income, and debt to income ratio.
If you are adding a co-signer for mortgage, you need to ensure the parameters for the co-signers are there to help you qualify for more and not bring it down.
Even if the co-signer has a great credit that what you have, the lender is going to qualify based on the lowest credit score between the primary signer and the co-signer.
Let’s get in the categories for the co-signers on a mortgage.
1 – non-occupant co-signer – A non-occupant co-signer is a person that is co-signing for the borrower and does not intend to live at the property in consideration.
In this situation, the co-signer is treated as just the same as the borrower. Lenders need to have qualifying credit, their monthly income, and their debts for the co-signer and put it into the equation with the actual borrower.
So, if you are unable to qualify for a specific amount to purchase a property due to debt to income ratio being high, and if the non-occupant co-signer has low debts with good credit and income, he or she could help you qualify for a higher amount.
A non-occupant co-signer is not necessary to be on the Title of the property. It is a choice given to the borrower whether or not to include the non-occupant co-signer on the title.
If you are getting a non-occupant co-signer, you would not be able to qualify for a down payment assistance program.
2 – Co-borrower – A co-borrower is the co-signer on the mortgage who is going to be an occupant in the home along with the actual borrower.
For example, you are not able to qualify for a house due to debt to income, you can ask your brother, sister, or whoever, to co-sign the loan and live together in that home.
The qualifying to the co-borrower stays the same as that of a non-occupant co-signer. If you are getting a co-borrower you could be able to qualify for a down payment assistance program.
Conclusion
If you are not able to qualify for a mortgage due to high DTI or low income co-signing could ensure that you are qualified for a mortgage and help you to buy that dream home.
You can get in touch with your trusted loan officer to check your eligibility and if you require a co-signer on mortgage or not.
