What You Need to Know About Cosigning a Mortgage

Considering a Non-Occupant Co-Signer for Your Mortgage

If your credit, debt, or income is keeping you from buying a house, you might be tempted to have someone in a more stable financial position help with your loan application. A non-occupant co-signer signing your mortgage along with you may be an option your lender offers, but there are a few things to consider before choosing this route.

Understanding the Role of a Co-Signer

Just like any other loan, the co-signer agrees to take full responsibility for the amount borrowed for the mortgage, even if you stop making payments. This makes it a very serious decision, especially for the person co-signing who will not live in the home.

Allowing a co-signer varies by lender and is only available for certain types of mortgages. If you are using a conventional loan, both parties will sign the loan documents, but you can choose to have only the occupant owner on the home’s title. The lender will evaluate the credit score, debt-to-income (DTI) ratio, and other factors for both parties during the application and underwriting processes. For an FHA loan, both people will sign for the loan and be on the title. Additionally, only relatives or close friends can be co-signers on FHA loans. This includes parents, grandparents, children, siblings, aunts/uncles, in-laws, spouses or partners, and close friends (with additional documentation detailing the relationship).

Key Points to Discuss with a Potential Co-Signer

If you are considering co-signing for a mortgage or asking someone else to co-sign, here are a few points to discuss before moving forward:

1. Access to Mortgage Statements: Will the co-signer have access to the mortgage statements? This can help them track that the monthly payments are being made.
2. Payment Notifications: Will the lender send a notification to all parties when the monthly payment is made?
3. Backup Plan for Missed Payments: At what point will the co-signer step in to make the monthly payment if the primary occupant misses a payment? Having a couple of months of payments set aside in case of an emergency can provide peace of mind.
4. Communication: How will the two parties communicate about the mortgage? Consider whether this arrangement could strain your relationship.

Alternatives to Using a Co-Signer

If you are struggling to come up with a down payment or meet credit requirements, there are other options besides using a co-signer that will still allow you to move forward with a home purchase:

• Low or No Down Payment Mortgages: Products such as FHA loans, VA loans, or USDA loans may be available. These options often have more lenient credit requirements and lower down payments.
• First-Time Homebuyer Assistance Programs: Some states or local areas offer programs to help first-time homebuyers with down payments and closing costs.
• Affordable Dwelling Initiatives: Certain areas have initiatives aimed at helping those with lower incomes relative to the cost of living.

Conclusion

Deciding whether to use a non-occupant co-signer for your mortgage is a significant decision that requires careful consideration and open communication. Understanding the responsibilities and risks involved is crucial for both parties. Additionally, exploring alternative mortgage options can provide solutions that fit your financial situation. Consulting with a knowledgeable mortgage broker like Oak Capital Mortgage can help you navigate these choices and find the best path to homeownership.