What Is A Mortgage Cosigner?

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 their mortgage payments, or goes into default.

Longer Definition: What Is A Mortgage Cosigner?

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.

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. 

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.

Start your online mortgage application here.

Mortgage Co-Signer: A Real World Example

First-Time Home Buyer Stories: Mortgage Co-Signer

Imagine a young first-time home buyer, eager to buy their first home. They have a stable job and a 3% down payment saved up for a Fannie Mae HomeReady mortgage.

However, the home buyer only recently opened their first credit card in their own name and lacks the requisite tradelines to get approved for a mortgage. Plus, their income, while steady, doesn’t quite reach the level needed to buy the home they want to bid on.

So, the homebuyer asks their aunt to co-sign on their mortgage, and their aunt, with a long history of managing credit and good income, agrees. Backed by the strength of their aunt’s finances and credit, the home buyer’s mortgage application is approved with favorable terms.

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.

The Risks Your 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 doesn’t pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.

Cosigners may be liable for late fees and collection costs

You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increase this amount.

Cosigners may have their wages garnished or be sued

The creditor can collect this debt from you without first trying to collect from the borrower. The creditor can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become a part of your credit record.

This notice is not the contract that makes you liable for debt.

Alternatives To Having A Cosigner

Mortgage cosigners risk their finances and creditworthiness for home buyers who lenders have deemed too risky to approve. If this makes you uncomfortable as the buyer, there are alternatives to having a cosigner.

Cosigner alternative when your income is too low

When your income is too low to qualify for a mortgage, there are three alternatives to finding a cosigner. 

One: Add an income-earning co-borrower to your mortgage application. Co-borrowers are cosigners who get ownership rights to your property. A co-borrower can reduce your debt-to-income ratio to help your mortgage get approved.

Two: Pay off your existing debts. By reducing your overall debt burden, you lower your debt-to-income ratio and can get mortgage pre-approved with your current household income.

Three: Ask for a cash gift for downpayment from family or friends. A cash gift for downpayment lowers your total loan size and reduces your projected mortgage payment. Lower mortgage payments require less household income to be approved. 

Cosigner alternative when your credit score is too low

A cosigner cannot offset a non-qualifying credit score. If your credit score is too low to get mortgage-approved, improve your credit by getting current on your accounts and reducing your credit utilization ratio.

You might also want to enroll in a credit-building program such as StellarFi, which claims to raise home buyer credit scores by 20 points in a month.

Cosigner alternative when you don’t have a big down payment

A cosigner may not be required when you don’t have money saved for a down payment. Low- and no-down payment mortgages may be an option.

Home buyers can apply for a 100% USDA loan or 97% conventional mortgage without the help of a cosigner. They can also apply for first-time home buyer grants and tax incentives through federal, state, and local agencies.

Cash downpayment gifts can also replace cosigners for a mortgage. Cash gifts don’t require additional mortgage borrowers on an application. 

Get pre-approved for a no or low down payment mortgage.

Common Questions About Mortgage Cosigning

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.