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Can a Co-Signer Help You Qualify for a Mortgage?

Can a co-signer help you qualify for a mortgage?

Michael Jensen, Mortgage and Finance Guru
, Mortgage and Finance Guru

First, it is important to define what a co-signer for a mortgage is. A co-signer is someone who is listed on the mortgage note but does not hold an ownership interest in the property. In short, the co-signer is responsible for the mortgage, along with the borrower,  but does not own the home. A mortgage co-signer typically does not live in the property you are getting the mortgage on. For example, if you ask a friend or relative to help you qualify for a mortgage and they are willing to be on the mortgage but not own a stake in the property, you are asking her or him to be a co-signer.

A co-signer is different than a co-borrower, who is listed on the mortgage note but also holds an ownership interest in the home. The most common example of co-borrowers in when spouses apply for a mortgage on a home they intend to own and live in together. In the cases when co-borrowers do not live in the property, they are called non-occupant co-borrowers.

A co-signer can help you qualify for a mortgage but there are several important points to keep in mind. First, when two people apply for a mortgage -- be it a borrower plus a co-signer or as co-borrowers -- the lender uses the lower credit score between the two applicants to determine your mortgage eligibility and loan terms. The lower your credit score, the higher the mortgage rate you pay. If your credit score is too low, you may not be eligible for certain loan programs.

So even though your co-signer’s credit score is high, it may not matter if your credit score is low. The example below demonstrates what credit score lenders use when you apply for a mortgage with a co-signer. Please note that if an individual has two credit scores, the lender uses the lower score and if an individual has three credit scores, the lender uses the middle score.

Borrower

Credit Bureau A: 630

Credit Bureau B: 640

Credit Bureau C: 660

Co-Signer

Credit Bureau A: 740

Credit Bureau B: 760

Credit Bureau C: 800

In the scenario above, the lender uses the 640 credit score -- the lowest of the applicants’ middle scores -- to determine the borrower and the co-signer's ability to qualify for the loan and to set their mortgage terms. This example demonstrates how having a co-signer with a higher credit score may not help you if your credit score is too low.

Where a co-signer can be more helpful is if she or he has a strong financial profile including a high credit score, high monthly gross income, relatively low monthly debt and significant assets.  In most cases, the lender does not add the co-signer's income to your income but the co-signer provides additional support if you are on the border in terms of qualifying for the mortgage amount you want.  In short, if the co-signer's financial position is strong enough, she or he can provide a helpful nudge to get your mortgage approved. 

Use ourMORTGAGE QUALIFICATION CALCULATORdetermine the mortgage amount you can afford

Please note that in many cases if you apply for a mortgage with a co-signer, the lenders applies a 43% debt-to-income ratio to the borrower's income alone to determine what size mortgage you qualify for.  In short, a debt-to-income ratio determines how much of your monthly gross income you can spend on monthly debt expenses including your mortgage payment, property tax, homeowners insurance as well as other debts such as credit cards and car, personal and student loans.  The lower the debt-to-income ratio used by the lender, the smaller the mortgage you qualify for.  This guidelines applies even if the combined income and debt expense for you and the co-signer would enable you to qualify for a higher mortgage amount. 

We should also emphasize that if you are a co-signer on a mortgage you are required to provide the same information and documentation as the borrower. This means the lender pulls the co-signer’s credit report and the co-signer is required to submit a loan application with detailed personal and financial information.  Plus, the co-signer is required provide documents including tax returns and bank statements. In short, the co-signer must be comfortable undergoing the same scrutiny and diligence that is applied to the borrower.

The final point to highlight about applying for a mortgage with a co-signer is that the qualification guidelines may be different. You may be required to make a higher down payment or the lender may apply a lower debt-to-income ratio, which reduces the mortgage you qualify for.

Mortgage underwriting and qualification requirements vary by lender and loan program. It is important to understand the guidelines that apply to your situation and how the loan amount you qualify for and your required down payment change if you apply for the mortgage as a sole borrower as compared to applying with a co-signer.

In closing, applying for a mortgage with a co-signer offers benefits but there are several possible disadvantages as well. The table below shows mortgage terms for leading lenders in your area. We always recommend that you contact multiple lenders to understand your financing options and how a co-signer could potentially help you qualify for a mortgage.

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Current Mortgage Rates as of May 25, 2019
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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.

Sources

Mortgage Co-Signer Guidelines: https://www.fanniemae.com/content/guide/sel050119.pdf

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About the author

Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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