Both cosigners and co-borrowers can make it more likely that you’ll qualify for a mortgage. However, each has a different level of responsibility for the loan and the asset that it ultimately is used to purchase. Because of this, each is more appropriate in different situations.
A co-borrower takes out the loan with you and is equally responsible for it and the property. A cosigner signs the loan with you but is only responsible for it if you neglect to pay it. They do not own the property.
In real estate, a co-borrower is sometimes also called a “co-applicant.” Co-borrowers’ finances are assessed to the same degree that yours are during the mortgage-application process, and they sign all the loan documents along with you. This person will be just as responsible for the loan and the property as you are; they’re an equal partner in the application and in ownership.
Many co-borrowers are the spouses or partners of the primary borrowers, but they don’t have to be — a co-borrower could also be a relative or close friend of the primary borrower. For example, friends might purchase a vacation property together as co-borrowers. The only requirement is that they are someone you trust to be as (literally) invested in the property as you are.
Having a co-borrower is a way to combine resources in order to get a loan — taking out a joint mortgage is easier when you have two sources of income going toward it, not to mention that it’ll be easier to pay it off if you’re splitting it. It may also help you qualify for a lower interest rate.
But the primary reason to have a co-borrower on a home mortgage is if you want to share ownership of the property with someone else. If that’s not your ultimate goal, then a co-borrower is probably not the best situation for you.
Just as a co-borrower takes on the same responsibilities as the primary borrowers, they also take on the same risks. Actions by any of the co-borrowers will affect the others. For example, all co-borrowers are considered equally responsible for late payments. They will also need to keep making payments if another co-borrower on the mortgage passes away.
If you need some help qualifying for a mortgage but intend to be completely responsible for it and the property yourself, having a cosigner might make sense for you. A cosigner is your backup: They agree that they will take responsibility for the loan in the event that you don’t or can’t make your payments. Unlike a co-borrower, a cosigner does not have any ownership rights to the property itself.
Many cosigners are parents or other family members who have more cash or better credit than the primary borrower.
A cosigner is essentially vouching for you as a borrower, lending you their credibility. This can be especially helpful if you’re just starting out financially or if your financial profile, on its own, isn’t desirable to the lender and won't pass muster during underwriting.
Even though the cosigner helps you qualify for the loan, they have no ownership claim to the property itself; a cosigner is a good option if you’d like to be the sole owner of the property.
For the primary borrower, there are no financial risks to having a cosigner. However, the cosigner is taking on quite a bit of risk. When they cosign a mortgage, late payments by the primary borrower are reflected on their credit report; and the obligation of being a cosigner can be counted against them as a liability should they seek out their own financing.
Because the cosigner is taking on so many risks in order to help the primary borrower get a mortgage, the ideal cosigner is someone who trusts you. If you don’t hold up your end of the deal (paying back the mortgage), the consequences can fall on them. This means that the real risk for the primary borrower is straining a previously close, trustful relationship.
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