Cosigning a mortgage is a financial responsibility with no tangible benefits for the cosigner. Still, you may decide that it’s right for you.
In 2021, 87% of homebuyers financed their purchase with the help of a home loan. But getting a mortgage can be difficult, especially if the borrower has a poor credit history or their mortgage application has been denied. If someone close to you is in this situation, they may ask you to cosign their mortgage.
Unfortunately, helping your loved one isn’t as simple as just signing on the dotted line.
Lenders may require a borrower to obtain a cosigner if the borrower’s income or credit score is lower than needed to qualify for the home loan.
But cosigning is more than a vote of confidence for your friend or family member: It’s a legally binding contract. As a cosigner, you agree to take on the financial responsibility of the loan if the borrower is no longer able to make payments. If your loved one misses payments, you’ll end up footing the bill.
Not exactly. While both cosigners and co-borrowers share in a loan's financial liability, the duties and benefits are distributed differently. We broke down the differences below:
The primary responsibility of cosigners is to pay back the loan in full if the primary borrower cannot.
While it may seem like cosigners can sit back and relax so long as the primary borrower doesn’t default, cosigning a mortgage comes with a few additional burdens:
Helping a friend or family member achieve their dreams of homeownership is a priceless gift that comes with many intangible and emotional benefits. But cosigning a mortgage also comes with tangible responsibilities. Understand the costs of each before agreeing to cosign a mortgage.
Cosigning a mortgage is similar to the process of applying for a mortgage. As a part of the borrower’s application, the cosigner will need to submit the following information to be verified by the mortgage underwriter:
Depending on the lender or loan terms, you may also need to verify your relationship to the borrower. Some lending programs require that the cosigner is related to the borrower in an effort to prevent investors from leveraging their power over homebuyers through the role of a cosigner.
Other options may be available for the borrower to secure financing for their dream home. Some of these services include:
Learn more about buying a home with Orchard.
If you’ve decided the benefits of cosigning outweigh the risks, you might wonder if you’re eligible to cosign a mortgage. While the requirements will depend on the unique circumstances of the primary borrower and their chosen lender, here are some frequently asked questions to help you determine if you may be eligible:
Yes, but you’ll need to show the lender that you’re financially healthy enough to take on the burden of a cosigner. So long as you meet the credit score, debt-to-income ratio, and other lender requirements, you can cosign a mortgage even if you are the primary borrower on one.
The minimum credit score will differ depending on the loan type and amount. But, generally, a cosigner will need good to exceptional credit: 670 or better.
No. The only way for a cosigner to be removed from their obligations is for the primary borrower to pay off the loan in full or the primary borrower to refinance, which effectively replaces the original loan with a new one.
No. The cosigner does not have any rights under the mortgage as a co-borrower does, nor are they able to assume rights during the loan’s lifespan.
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