Qualifying for a mortgage on your own can be challenging, especially if you do not make a lot of money or if you have a limited credit history. One potential solution to this issue is to have your parents or someone else co-sign the mortgage with you.
In this scenario, your parents are co-borrowers on the mortgage with you and their income and credit score may help you qualify for the loan or afford a higher mortgage amount. But what happens if you can afford the mortgage on your own in the future, perhaps because your income increases. Is it possible to remove your parents or another co-signer from the mortgage?
In short, most lenders do not allow you to remove a borrower from a mortgage. This guideline applies to both the primary borrower and any co-signers on the loan. So if your parents co-sign a mortgage with you, they are usually on the mortgage until the loan is refinanced or paid off.
You can submit a request to your lender to have co-borrowers removed but these requests are almost always declined, even if the borrowers are co-signers and the primary borrower remains on the mortgage. Lenders prefer to keep the original borrowers on the loan because they believe it provides more security and certainty that the loan will be repaid.
In your case, keeping your parents on the mortgage means they may be able to help you pay the loan if you ever find yourself in a financial bind. If your parents are removed from the mortgage they are no longer legally responsible for loan.
From the lenders standpoint, the more people who are obligated to repay loan, the better. The lender’s primary concern is making sure your loan is repaid in full -- e..g., they get their money back -- and a lender is highly unlikely to do anything that undermines that objective, such as removing co-signers from a mortgage.
From your parents’ perspective, being co-borrowers can affect their credit as well as their ability to qualify for other loans. If you miss a mortgage payment or default on the loan, those negative events also appear on their credit report. If the issue is significant, their credit scores may drop substantially or they may not be able to qualify for additional loans.
Additionally, when they apply for another loan, the monthly payment for your mortgage -- plus property tax and insurance -- is included in their debt-to-income ratio, which reduces the loan amount they can afford. The only way they can exclude the payment when they apply for their own mortgage is if you (the other borrower listed on the mortgage) has made the monthly payments on time and in full for at least one year. You are required to provide twelve months of documents such as cancelled checks or bank statements that verify that the other borrower -- you in this case -- made the payments.
This is why it is important to carefully consider the potential risks before agreeing to co-sign a mortgage for someone. If the primary borrower does not uphold her or his responsibility, the consequences for all borrowers on the mortgage can be very negative.
Returning to your situation, the only way to remove your parents from the mortgage is to refinance the loan in the future. When you refinance the mortgage, you can remove your parents as co-borrowers and you are be the sole borrower on the new loan or potentially a co-borrower with someone else.
The table below shows refinance rates and closing costs for leading lenders in your area. We recommend that you shop multiple lenders to find the best refinance terms.
Your other option to apply for the mortgage initially as a sole borrower. While it may be helpful to have your parents or someone else as co-borrowers, the mortgage amount you can afford on your own may be higher than you think.
Use ourMORTGAGE QUALIFICATION CALCULATORto determine the loan you can afford based on your income and debt expense
It is important to highlight that if you apply for a mortgage as a sole borrower without your parents or anyone else then the lender does not factor in their income and debt expenses to determine the loan you can afford. This may mean that you qualify for a smaller mortgage amount, depending on your monthly gross income and debt.
On the other hand, if you apply as a sole borrower, the mortgage is only in your name, so the loan does not negatively affect your parents' credit or ability to qualify for loans in the future.
"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.
"B3-6-05, Debts Paid by Others." Selling Guide: Fannie Mae Single Family. Fannie Mae, February 5 2020. Web.