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Qualify for mortgage with co-signer if unemployed?

Can you qualify for a mortgage with a co-signer if you are unemployed?

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience

Being unemployed can make it challenging if not impossible for you to qualify for a mortgage. One potential solution is to apply for the loan with a co-signer.

If you are unemployed you can qualify for a mortgage with a co-signer but there are several guidelines that you must satisfy. First, in addition to being listed on the mortgage and responsible for the loan, the other applicant needs to be on the property title as an owner, which technically makes them a co-borrower. In this case, both you and the co-signer are obligated for the mortgage and own the home together.

Additionally, if the co-signer does not intend to live in the residence with you, the property is considered their second home or investment property. The mortgage terms and qualification requirements for a second home or rental property are less favorable than for a loan on your primary residence. The mortgage rate is higher -- especially for an investment property -- and you are also usually required to make a higher down payment.

Another point to consider is that if you are not currently employed, the lender considers your credit score and debt expenses but you must qualify for the mortgage solely based on the co-signer’s monthly income.

Any personal debt expenses you have such as credit cards and car, personal and student loans plus the monthly rent or mortgage payment for the co-signer’s primary residence is included in your combined debt-to-income ratio.

In short, the co-borrower needs to earn enough monthly income to afford the mortgage payment, property tax and homeowners insurance on two homes -- their primary residence and the property they are buying with you. It is typically more challenging for one person to afford two mortgages.

Use ourTWO PERSON MORTGAGE QUALIFICATION CALCULATORto understand the loan amount two people can afford

If the co-signer has significant monthly income and your combined monthly debt expense is relatively low, then you should be in good shape to qualify for the mortgage. If the co-signer has minimal income and your debt payments are high, you may not be approved for the loan you want.

It is also important to understand that when two applicants apply for a mortgage, the lender uses the lowest credit score among the borrowers to determine your ability to qualify for the loan and to set your loan terms. So if the co-signer has a high credit score it may not be beneficial if your score is low.

For example, if your credit score is 640 and the co-signer’s score is 740, the lender uses the 640 score to evaluate your mortgage application. For many loan programs, applicants with a lower credit score are required to pay a higher mortgage rate. This increases your monthly payment while also reducing the loan amount you can afford.

To summarize, in most cases you cannot qualify for a mortgage on your own if you are unemployed but having a co-signer on the loan can be helpful in certain situations. In this case the co-signer is effectively qualifying for the mortgage and buying the home for you, although you are both listed on the property title and responsible for the loan.

Because this scenario is relatively uncommon, we recommend that you contact multiple lenders in the table below to learn more about their qualification guidelines. Comparing loan terms from multiple lenders is also the best way to save money on your mortgage.

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Current Mortgage Rates in Ashburn, Virginia as of September 25, 2020
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Data provided by Brown Bag Marketing, Inc. Payments do not include amounts for taxes and insurance premiums. Read through our lender table disclaimer for more on rates and product details.

Sources

"B2-2-04, Guarantors, Co-Signers, or Non-Occupant Borrowers on the Subject Transaction."  Selling Guide: Fannie Mae Single Family.  Fannie Mae, June 5 2018.  Web.

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About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR.  Harry is a licensed mortgage professional (NMLS #236752). More about Harry

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