Here's how to get a mortgage with a co-borrower or cosigner

Co-borrowers and co-signers. Is there a difference? Which is better?

Parents co-signing their son's mortgageCo-borrowers and co-signers. Is there a difference? Which is better? The main difference between co-borrowers and co-signers for loans offered indirectly by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) is who owns the loan.

Co-signers or guarantors are people who sign a mortgage or deed of trust on behalf of someone else.

They are both responsible for the promissory note. Non-occupant borrowers are people who apply for credit on a primary home but don't live there. They sign the mortgage or deed of trust and are responsible for the loan along with the borrower (s). Co-borrowers who are not occupants may or may not have a part in the subject property, as shown on the title.

It may appear as though guarantors, co-signers, and co-borrowers who do not live in the property are all the same thing.

But, they are not. The deed is not signed by co-signers or guarantors (title to the property). The deed is the legal ownership of the property.

Even though they don't own the property, they are still responsible for the mortgage if the principal borrower can't make the required payments on a monthly basis.

Couple standing in front of a judgeNon-occupant borrowers sign the mortgage, trust deed, promissory note, and deed. Borrowers who don't live in the property have a stake in it. If a guarantor or co-signer does not sign the deed, they do not have ownership in the property.

It might seem like a good idea to help a borrower by being a non-occupant owner, but here's what can happen. It happened to me, so I should know . . .

I wanted to buy a house from a seller who was very close to losing it to foreclosure. We agreed on a price for the sale, and we both signed the contract. A few days after that, the title insurance company called me. I was told that the home was owned by a distant cousin.

As it turned out, the seller and her aunt, who was a non-occupant co-borrower were both enjoined on the deed. The aunt passed away and her interest in the home passed to her heirs. Every one of the heirs, except for one relative who did not get along with the seller, signed a release for their share of the earnings from the sale.

The cousin refused to sign the sales contract or release her equity in the home. Now what? I had to retain an attorney and had to resolve the ownership interest decided by a judge. The judge knew that the aunt was only on the mortgage and deed to help her niece get a mortgage.

The cousin was using the sale as an opportunity to put it to her cousin. The cousin had a financial stake in the sale, but the judge waived his hand and signed the papers to get rid of it. Shortly thereafter, I closed on the house.

Being a non-occupied (or occupied co-borrower) has it's risks. My advice is to have an attorney review the paperwork. Otherwise, you might need a judge to resolve an inheritance issue.

Co-Borrower Vs. Co-Signer: Is there a Difference?

Both co signers and co borrowers share in the responsibility of taking out a loan. "Non-occupant co-borrower" means you committed to pay the mortgage but don't live in the house.

Co-signers and co-borrowers are the same thing. The terms are synonymous from a lending perspective.

From a legal perspective, there's a big difference. A co borrower will appear on the property's title, but a co signer will not, in most cases. Being on the title comes with its own set of rights and responsibilities. If a visitor gets injured on your property and your name is on the title, you may be liable for the damages.

Ask your attorney how to structure the transaction if you to co sign a mortgage loan.

Conventional Loan Co-Signer Requirements

Mortgage lenders will look at your income, credit, and other finances. These items are also needed from your co-borrower (spouse or partner). If your co-borrower doesn't have these items, you may need a co-signer. Co-signers are like co-borrowers, but have distinct obligations.

What A Co-Signer Is Responsible For

Co-signers are the same as co-borrowers (someone who is on the loan with you). They are both responsible for paying back the loan and for any problems that may come up in the future. If the primary borrower stops paying on the loan. The co-signer is expected to make the payments.  If a co-signer wants out of the loan, he or she can seek a Release of Co-Signer from the lender. If the primary borrower makes all payments on time, then the co-signer has nothing to worry about. If the principal borrower stops paying, the lender may go for the co-signer.

Benefits Of Having A Co-Signer For Your House

Man holding a cosigner signCo-signers have a lot of benefits. If the main borrower's credit isn't the best, a co-signer can help the main borrower get the loan.  Co-signers don't need to have excellent credit to get approved for the loan. They need to make sure the lender sees that they have the ability to pay the loan. If the main borrower's income is less than what the lender wants, a co-signer with a higher income may be able to help them.

A co-signer can also help the primary borrower qualify for a larger loan. Lenders may be willing to give the primary borrower a larger loan with a co-signer. This may help the primary borrower get a lower interest rate on the loan.

Looser Credit Score Requirements

Co-borrowers with better credit can help the main borrower get a bigger loan. This might cut the loan's interest rate.

In return, the main borrower is expected to pay back the co-borrower. A co-borrower can be an adult child, spouse, parent, grandparent, friend or relative. A co-borrower is called the secondary borrower and the main borrower is called the primary borrower. How does a secondary borrower benefit from a co-borrower? A secondary borrower with better credit can help the main borrower get a bigger loan.

The Potential For A Larger And Cheaper Loan

Very nice interior of a new homeDepending on the amount of equity you have in your house, a lot of people use it as security for a new loan. "Cash-out" refinancing might lead to a larger loan and reduced interest rate. The co-borrower would then get a new mortgage and be responsible for paying back that loan.

Ready to buy a home, but worried about your credit?

Your debt-to-income ratio may be too low if you have weak credit and no co-borrower. Having a co-signer on your mortgage loan can turn a "no" into a "yes".

The Drawbacks Of Co-Signing A Loan

When you co-sign on a loan, you take full responsibility for it, even if the lender doesn't send you any notices. If the main borrower doesn't make their payments, you won't find out either. This can be a problem if the primary borrower loses their job or gets behind on payments. If the main borrower can't make their payments, you will have to start making payments on their loan. This could result in your having less money each month. If you don't have enough money to make both payments, you could end up getting sued by the lender.

Potential Responsibility For Payments

If the main borrower doesn't pay, the lender will look for other ways to get the money back. They may start by contacting the co-signer first. If they don't receive payment, they'll likely start to take legal action. The co-signer could be responsible for paying the loan in its entirety.

Difficulty Getting Out Of The Loan

If the primary borrower loses their job and can't make payments, it could take a long time to get out of the loan. If you want to get out of the loan early, it can be difficult. The lender may you to refinance the loan or pay it off in full before allowing you to get out of the loan.

Conclusion

Having a co-signer on your mortgage loan can be helpful in certain situations. Before choosing if you need a co-signer, consider your money and future goals.

If your finances aren't terrific, a co-signer may help you buy a cheaper home. Cosigning on a loan is a big deal, and if the main borrower doesn't make their payments, it could be very bad for you.

A co-signer signs a loan for someone else and assumes responsibility if they don't pay. Cosigning a loan for someone is a kind thing to do, but it could hurt your finances.  Before co-signing a loan, it's important to understand the potential consequences.