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How Does a Co-Borrower for a Mortgage Work?

How does a co-borrower for a mortgage work? Can having a co-borrower reduce your mortgage payment or only help you qualify for a larger mortgage?

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

When two people apply for a mortgage as co-borrowers, the lender combines their monthly gross income and debt expense to determine what size mortgage they qualify for. If a co-borrower has sufficient income and minimal monthly debt expense then the co-borrower likely helps you qualify for a larger mortgage amount. On the other hand, if a co-borrower has modest income and significant monthly debt expense then the co-borrower likely reduces the mortgage amount you qualify for. You can use our Two Person Mortgage Qualification Calculator to determine what size mortgage co-borrowers can afford based on their monthly gross income and debt expense.

Please note that when two people apply for a mortgage as co-borrowers, the lender typically uses the lower credit score among both borrowers for the mortgage qualification process. The higher the credit score used by the lender, the lower your mortgage rate, and the lower the credit score, the higher the mortgage rate. So if one co-borrower has a significantly lower credit score than the other co-borrower, they may end up paying a higher mortgage rate and higher monthly payment. We provide a comprehensive overview of borrower mortgage qualification guidelines on FREEandCLEAR, including borrower debt-to-income ratio, employment history and credit score requirements. When two people apply for a mortgage as co-borrowers, the qualification guidelines apply to both borrowers.

You also asked if having a co-borrower on a mortgage can reduce your monthly payment and the answer is yes, but only indirectly. The only ways to lower your mortgage payment are to reduce your loan amount or lower your mortgage rate. In some cases, a co-borrower also makes a contribution to the down payment. The larger the down payment, the lower your mortgage amount and lower your monthly payment. Making a larger down payment may also reduce your mortgage rate, which reduces your monthly payment. Additionally, making a down payment of at least 20% of the property purchase price enables you to avoid paying private mortgage insurance (PMI), which is an extra cost on top of your monthly mortgage payment. While not paying PMI does not technically lower your actual mortgage payment, it does reduce your total monthly housing expense.

Another point to consider is that if a co-borrower has a very strong financial profile, such as meaningful income, limited debt and significant savings in reserve, he or she may enable you to qualify for a lower mortgage rate, which reduces your monthly payment. Additionally, borrowers with strong credit profiles may also qualify for lower mortgage rates and lower payments.

Finally, we always recommend that borrowers contact multiple lenders to understand how they would handle your unique situation. You can review lenders in your area by clicking INTEREST RATES We advise you to contact at least four lenders as qualification guidelines vary. Plus, shopping lenders is the best way to save money on your mortgage.

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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. More about Harry

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