Using a Co-Signer on a Mortgage

Are you considering buying a home, but not sure you can do it on your own? Often times co-signers are a good choice when looking for help to buy your home. To help you decide whether a co-signer is the best choice for you, we’ve compiled a list to help you know the ins and outs of using a co-signer on a mortgage.

When to use a co-signer 

One of the most common scenarios using a co-signer on a mortgage are young adults just starting out in their careers who use parents as co-signers while they’re steadily increasing their income. Other lesser-known but still common scenarios include:

• Divorcees often use co-signers to help qualify for a home they’re taking over from ex-spouses.
• Individuals taking time off to go back to school use co-signers to help during this transitional phase.
• Self-employed borrowers whose tax returns don’t fully reflect their actual income use co-signers to assist them.

Types of co-signers

There are two main types of co-signers: those that will live in the home, and those that will not. Lenders refer to these as occupant co-borrowers and non-occupant co-borrowers, respectively.

• Non-occupant co-borrowers are the most common category for co-signers. These borrowers do not live in the home
• Occupant co-borrowers who are co-signing on a new home will live in the home and can expect lenders to scrutinize the location and cost of their current home, and should also expect post-closing occupancy checks to verify they’ve actually moved into the new home.

Lenders require that anyone on the loan must also be on the title to the home, so a co-signer will be considered an owner of the home.

If borrowers take title as joint tenants, the occupant and non-occupant co-borrowers will each have equal ownership shares to the property.

If borrowers take title as tenants in common, the occupant and non-occupant co-borrowers can define their individual ownership shares to the property.

Financial considerations for co-signers

Lenders allow occupant and non-occupant co-borrowers to have different ownership shares in the property because the contract for the loan makes them both equally liable for the loan.

This means that if an occupant co-borrower is late on the mortgage, this will hurt their credit and the non-occupant co-borrower’s (the co-signer’s) credit.

Another co-signer risk is that the co-signed mortgage will often count against them when qualifying for other loans (personal, auto, business, student etc.) in the future.

So if you’re thinking about buying a home with a co-signer, be sure you both are clear on what it means and you both seek out professional advice.

 

Cesi Pagano

www.cesipagano.com 

(949) 370-0819