Key Takeaways
- A cosigner helps you qualify by boosting your creditworthiness.
- Cosigners share full financial responsibility on the mortgage.
- They have no ownership rights, despite sharing liability.
- A cosigner is often a family member or close friend.
Article Summary
A mortgage cosigner is a person who agrees to make mortgage payments on behalf of a home buyer in the event the buyer falls behind on mortgage payments or goes into default.
Mortgage Cosigner: Explained in Plain English
A mortgage cosigner is a person who signs mortgage paperwork with the primary borrower and is equally responsible for the repayment of the loan.
The primary use case for a mortgage cosigner is when a first-time home buyer wants to buy a home but cannot qualify for a mortgage based on low credit scores or household income. Cosigners add financial stability and creditworthiness to a mortgage application.
Mortgage cosigners are guarantors and assume responsibility for a mortgage, yet receive none of the homeownership's tax benefits and none of its wealth accumulation.
Cosigners are typically family members such as parents, grandparents, or siblings because of the imbalance between risk and reward. Occasionally, a child cosigns a mortgage with a parent.
Getting a Mortgage Co-Signer for Your Mortgage
Most mortgage lenders allow cosigners provided the following conditions are met:
- The cosigner may not have a financial interest in the property
- The cosigner must have a personal relationship with the buyer
- The cosigner's relationship with the buyer must pre-date the purchase
Lenders may require an affidavit to attest to the relationship between buyer and cosigner and that the relationship survives the life of the mortgage.
Cosigner policies vary by lender, so compare these mortgage lenders to find the one with the most favorable cosigner requirements.
The Difference Between a Cosigner and a Co-Borrower
The difference between co-signers and co-borrowers is that co-borrowers double as co-owners of the home. Co-borrowers are named on the home's deed and own an equal percentage of the property unless a separate legal agreement limits their stake.
Co-borrowers can use their status as co-owners to block a future home sale, mortgage refinances, or assignment of the deed if it's not in their best interest. They can also interfere with home renovations and permitting.
By comparison, cosigners on a mortgage hold no rights. A cosigner cannot prevent a sale, a home repair, or a refinance to lower rates.
Review: Cosigner vs Co-Borrower
| Feature | Cosigner | Co-Borrower |
|---|---|---|
| Responsible for mortgage payments | Yes | Yes |
| Name appears on property deed | No | Yes |
| May live in the home | No | Yes |
| Credit score impacted by loan | Yes | Yes |
| Can block sale, refinance, or deed change | No | Yes |
| Eligible for homeowner tax benefits | No | Yes |
| Typical relationship to buyer | Family member or friend | Spouse, partner, or co-owner |
Cosigner Requirements Based on Mortgage Type
Cosigner requirements may also vary by mortgage type. Here is a breakdown of co-signers' requirements for conventional loans, FHA loans, USDA loans, and VA loans.
Conventional Loan Cosigner Requirements
Conventional mortgages are loans backed by Fannie Mae and Freddie Mac, which may include low-down payment programs such as HomeReady and Home Possible and the Conventional 97 mortgage.
In addition to the standard cosigner guidelines, conventional mortgage cosigners must meet the following program standards:
- 620 FICO score or higher
- Digital income verification, or W-2 and federal tax returns
- Digital asset verification, or bank statements
Conventional mortgage cosigners may not have a stake in the purchase mortgage transaction.
FHA Loan Cosigner Requirements
FHA mortgages are mortgages insured by the Federal Housing Administration. FHA mortgages allow buyers to make a down payment of 3.5 percent.
FHA cosigners must meet standard mortgage cosigner guidelines and the following criteria:
- 580 FICO score or higher
- Digital income verification, or W-2 and federal tax returns
- Digital asset verification, or bank statements
FHA mortgage cosigners are not required to be U.S. citizens. Still, they must make their primary residence within the United States and its territories.
VA Loan Cosigner Requirements
VA mortgages are mortgages guaranteed by the Department of Veterans Affairs. VA mortgages require neither down payments nor mortgage insurance.
Cosigners on a VA loan must meet standard mortgage cosigner guidelines as well as the following qualifying criteria:
- 620 FICO score or higher
- Digital income verification, or W-2 and federal tax returns
- Digital asset verification, or bank statements
VA mortgage cosigners must be active-duty military members, honorably discharged veterans, or surviving spouses.
USDA Mortgage Cosigner Requirements
USDA mortgages are mortgages guaranteed by the U.S. Department of Agriculture. USDA mortgages are 100% loans with reduced mortgage insurance premiums and low interest rates.
USDA loans don't allow cosigners.
Review of Cosigner Requirements By Loan Type
| Loan Program | Cosigner Requirements and Details |
|---|---|
| Conventional | Cosigner must not have a stake in the home. Must meet credit and income rules. |
| FHA | Cosigner does not need to be a U.S. citizen but must live in the U.S. or its territories. Must meet credit and income rules. |
| VA | Cosigner must be an eligible veteran, active-duty service member, or surviving spouse. Must meet credit and income rules. |
| USDA | USDA loans do not allow cosigners. |
The Risks A Mortgage Cosigner Assumes
Mortgage cosigners get no tangible benefit from cosigning on loans. They assume liability as a favor to home buyers who otherwise cannot be mortgage-approved.
It's a risky proposition.
To help protect cosigners, the Federal Trade Commission requires cosigners on loans to read and sign a document titled "Notice to Cosigner" highlighting the risks of a cosigned loan.
Here are the major points outlined:
Cosigners Should Be Sure They Can Afford the Buyer's Debt
If the borrower fails to pay the debt, the cosigner will have to. Every potential cosigner should evaluate their ability to make mortgage payments and accept that obligation before signing.
Cosigners May Be Liable for Late Fees and Collection Costs
A cosigner may be required to pay the entire mortgage debt if the borrower defaults on their loan. Additional late fees or collection costs may be owed, too.
Cosigners May Have Wages Garnished or Be Sued
A creditor can pursue payment from a cosigner without first attempting to collect from the borrower. Creditors may use lawsuits or wage garnishment to recover what they are owned.
Alternatives to Having a Cosigner
If finding a cosigner makes you feel uncomfortable for your mortgage, there are alternatives.
When Your Income Is Too Low
- Add an income-earning co-borrower to lower your debt-to-income ratio.
- Pay off debts to improve your debt-to-income ratio and help you qualify.
- Request a cash gift for downpayment from family or friends to lower your loan-to-value.
When Your Credit Score Is Too Low
Cosigners cannot offset a non-qualifying credit score so improve your credit score. Many home buyers can raise their FICO 100 points or more within just six months.
When You Don't Have a Big Down Payment
- Apply for low- and no-down payment mortgages, such as a 100% USDA loan or a 97% conventional mortgage.
- Check first-time home buyer programs available through federal, state, and local agencies.
- Use a cash gift for down payment which does not require adding another mortgage borrower to an application.
Mortgage Cosigner: A Real World Example
Imagine a young first-time home buyer, eager to buy a first home. This person has a stable job and a 3% down payment saved up for a Fannie Mae HomeReady mortgage.
However, the home buyer only recently opened a first credit card in their own name and lacks the requisite tradelines to get approved for a mortgage. Plus, the income, while steady, doesn't quite reach the level needed to buy the home they want to bid on.
So, the homebuyer asks an aunt to co-sign on the mortgage, and the aunt, with a long history of managing credit and good income, agrees. Backed by the strength of the aunt's finances and credit, the home buyer's mortgage application is approved with favorable terms.
Common Questions About Mortgage Cosigning
Get answers to frequently asked questions about mortgage cosigners, including requirements, responsibilities, and how they affect credit scores.
Who Should Cosign My Mortgage?
A mortgage cosigner should be a family member or a friend with excellent credit and a long history of on-time payments to creditors.
What is the Minimum Credit Score for a Mortgage With a Cosigner?
Minimum credit scores for mortgages with cosigners vary by mortgage type. All parties to the mortgage must meet minimum thresholds. Conventional mortgages require a 620 credit score. VA mortgages require a 620 credit score. FHA mortgages require a 580 credit score.
Does Cosigning on a Mortgage Do Harm to a Cosigner's Credit Score?
Cosigning on a mortgage will boost a cosigner's credit score when payments are made on time and lower a cosigner's credit score when payments are delinquent.
Does Cosigning on a Mortgage Give Tax Benefits to the Cosigner?
Cosigners do not get tax benefits for being cosigned on a mortgage. Tax benefits are reserved for the homeowner, who makes the payments to the lender. Consult your accountant for individual tax regarding mortgage interest tax deductions.
Can a Married Couple Have a Cosigner on a Home?
Yes, married couples can use a mortgage cosigner. Cosigners must be family members or friends with a pre-existing relationship that would reasonably survive the mortgage.
Does a Cosigner on a Mortgage Own the House?
No, mortgage cosigners are not co-owners of the home. Cosigners are obligated on a home's debt with no rights or claims to the underlying property.
How Long Does a Cosigner Stay on a Mortgage?
A cosigner is a mortgage guarantor and cannot be removed from an active mortgage. Cosigners remain on the mortgage for as long as it's active.
Can I Remove a Cosigner From My Mortgage at a Later Date?
Cosigners cannot be removed from an active mortgage. The mortgage must be refinanced or paid in full to remove a cosigner's credit obligation.
What Is a Non-Occupant Co-Borrower?
A non-occupant co-borrower is a co-borrower that lives in a property other than the subject property. Non-occupant co-borrowers are often family members.
