Should I get a cosigner for my mortgage?

Before you can get a mortgage, you’ll have to meet the lender’s requirements or your loan application might be denied. Adding a cosigner can help as long as you both understand the risks.

How can a mortgage cosigner help?

A cosigner is usually a relative or close friend who agrees to pay your loan balance if you default. Because a cosigner takes away some of the risk from the lender, homebuyers who wouldn’t otherwise meet the loan requirements could be approved for a mortgage.

A few situations when having a cosigner can come in handy are:

• If you have poor credit.
• If you have a high debt-to-income ratio.
• If you have limited employment history.
• If you’re self-employed.

A lender will consider your cosigner’s income, assets, liabilities and credit history as part of your application, potentially tipping the scale in your favor for stronger rates and better terms than you might be approved for on your own.

A cosigner typically stays on the mortgage long enough for a primary borrower to establish sufficient credit to take on the responsibility themselves. Unlike a coborrower, your cosigner promises to pay back the full balance of what you owe if you default.

Who can be a cosigner?

For most traditional mortgages, a cosigner can be anybody who’s willing to take on the risk of responsibility if you’re not able to repay what you borrow, including family, friends or advocates.

Some types of mortgages exclude cosigners who have a financial stake in the home you’re buying. For instance, FHA loans require your cosigner to be related to you by blood, marriage or law. The exclusion prevents agents and brokers from helping clients secure the homes they’ll get commission on.

What can’t a cosigner help with?

There are limitations to what a cosigner can help you with. A cosigner cannot:

• Eliminate your required down payment.
• Help you get a mortgage if your debt-to-income ratio is more than 43%.
• Help you get a mortgage if you don’t meet the minimum required credit score. Some exceptions may apply at the discretion of the lender.
• Help you get a mortgage if you have a history of foreclosure or bankruptcy.

What are the risks to your cosigner?

Asking someone to cosign a mortgage shouldn’t be taken lightly. It’s a serious financial commitment because the cosigner is responsible for paying the debt obligation if you can’t.

In addition to the potential strain that a bad experience could put on your relationship, the cosigner’s credit may also be affected if you’re unable to make payments.

Where can I find a good cosigner?

Your lender might have specific requirements about who is eligible to cosign for you, so start there. Some lenders might require that a cosigner is a family member or another creditworthy adult with who’s like family. Lenders might also require that your cosigner live in the same state as you and the property that you want to buy.

For FHA loans with less than a 25% down payment, the cosigner must be a parent or blood relative.

Some general qualities to look for in a cosigner are:

• US citizenship or be a resident alien.
• A close relative or friend.
• High credit score and income.
• Strong employment history.
• Low debt-to-income ratio.

Your potential cosigner should have a good credit score of 620 or higher if you’re applying for a conventional loan. You’ll need a cosigner with a score of at least 580 for an FHA mortgage. A low debt-to-income ratio and a reliable source of income can further leverage your cosigner into low rates and strong terms.

Can a retired person cosign a mortgage?

Yes. While all lenders require cosigners to have a source of income, retirement income counts and you could benefit from adding them to the application.

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Bottom line

Getting a cosigner on your mortgage can be beneficial if you’re having trouble getting approved for a loan or if you’d like a better interest rate. However, cosigners take on a considerable amount of risk, so be sure the person you choose is capable of taking on those risks. Once you’ve decided, be sure to compare your mortgage rates to find the right loan for you.

Frequently asked questions

• What's the difference between a co-borrower and a cosigner?

  Co-borrowers have the same ownership rights and payment requirements as the primary borrower. They’re equally responsible for paying the down payment, monthly mortgage expenses, taxes, insurance and other costs associated with homeownership.

  Cosigners have no ownership rights to the property and are not responsible for helping with the down payment or other financial obligations. The only time a cosigner is financially responsible is if the borrower fails to make mortgage payments.

• Can I get a better mortgage rate with a cosigner?

  Yes, in some cases. It’ll depend on your cosigner’s credit history, income and other factors.

• How good does my cosigner's credit need to be?

  Most lenders expect your cosigner to have “good” or “excellent” credit, which is typically 700 or above.

• Can I remove a cosigner from my loan?

  Yes. There are a few ways to remove a cosigner from your loan by:

  • Refinancing your mortgage.
  • Selling your home.
  • Requesting an assumption from your lender.