Will a Cosigner Improve Your Chances of Getting a Mortgage?

If you have bad credit, you may not qualify for a mortgage on your own. But will it help to have a cosigner?

Many first-time homebuyers are itching to take advantage of the record low mortgage rates these days. But without the proper credit or qualifications, many of these hopeful homeowners are being turned down for mortgage loans and for the low mortgage rates. Fortunately, there are ways to help you get more favorable loan terms if this sounds like your situation. A cosigner for your mortgage is one ideal way to get a mortgage lender to make you a better offer when you apply for a mortgage.

Young people often need to turn to a cosigner to help them qualify for better terms on their mortgage loan. If they have had trouble getting credit or if they have messed up their credit in the past and recently tried to fix their past mistakes, a cosigner could be the extra edge they need to obtain a mortgage. Unemployment, divorce and other credit problems occur and it is tough to bounce back without the help of a cosigner. But even retirees often need cosigners if they have a limited income, so needing extra help is not exclusive to young home buyers.

Unfortunately, a cosigner will not help much if the mortgage borrower would not qualify for a loan by themselves. If they are on the verge of qualifying but it could go either way, a cosigner may tilt the odds in the borrower’s favor. However, borrowers who have really bad credit scores (in the 500s or lower) will not be considered for a mortgage loan even if they have a cosigner. Mortgage lenders typically base their decision on the lower of the two scores so even if your cosigner has impeccable credit, your score will be the one that determines if you will qualify or not. The only time a cosigner will actually be considered is if the borrower has no credit history. Then the lender may make their decision solely on the credit score of the cosigner, but this may not always happen.

If you are asked to be a cosigner on a mortgage, do not take this decision lightly. If the mortgage borrower defaults on their loan, you will be the one that becomes responsible for it. You may want to help your son, daughter, grandson, granddaughter, nephew, niece or other family member get a great rate on their home loan, but at what expense will it be to you? If they have already ruined their own credit, there is a good chance that they will ruin your credit as well. If you do decide to be a cosigner, make sure you stay updated on the status of the loan payments. You will not get late notices or other alerts so it will be up to you to stay on top of this. Also, be aware that the mortgage loan will show up on your credit, meaning you have less available credit to you for as long as you are on the mortgage note.

Once the borrower begins to build their credit, they can refinance the loan in their own name and your name can be taken off of the loan. These are all important considerations for both the primary borrower and the cosigner so be aware of them and communicate with each other before and after the loan goes through.

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  • ana

    May 26, 2013

    my husband is the buyer and score is 700 but do to income we need a co signer ... on a Fha loan can we still qualify the co signer will put the down payment and buyer will put the closing cost....what are the chances of getting the home. as first time buyer.

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