Can you have a cosigner on a mortgage? What you should know

What you’ll learn:

— What a mortgage cosigner is and the difference between a cosigner and co-borrower

— Benefits and risks for borrowers and cosigners

— How the home financing process works when you have a cosigner

Are you trying to secure a mortgage but can’t qualify on your own? A cosigner may be the difference between approval and denial. They agree to pay back your loan if you default, so the lender takes on less risk by providing the loan. 

Usually, you just need lender approval to add a cosigner, but there are some limits. In this article, we’ll go over when you can have a cosigner on a mortgage, how it works, and the pros and cons.

What’s a mortgage cosigner?

A mortgage cosigner is a person who agrees to make mortgage payments if the borrower defaults. Lenders evaluate the creditworthiness, income, and existing debts of both the borrower and cosigner. 

So when can a mortgage have a cosigner? Do lenders ever say no?

Most mortgages allow them, but not all. USDA loans, for instance, don’t permit non-occupant cosigners. Additionally, cosigners must meet a set of requirements, which we’ll cover below.

Cosigner vs. co-borrower

What does it mean to cosign a mortgage loan versus co-borrow? The key difference lies in ownership. Here’s how it breaks down:

— Cosigner: Agrees to make repayments if the borrower defaults on the loan, but has no legal claim on the property

— Co-borrower: Shares financial responsibility for the loan and appears on the title

Co-borrowers often live in the home (e.g., spouses, partners, siblings) after final sale, while cosigners may not (e.g., older relatives, business partners). 

How does cosigning on a mortgage work? The process

Applying for a mortgage with a cosigner isn’t all that different from applying alone. Both parties will be involved in the process and provide financial documentation rather than just one.

The lender will view each of their credit reports, employment histories, debts, and assets. If they approve the application, they’ll set loan terms based on each party’s combined financial strength. Each applicant is fully liable for the mortgage.

Cosigner requirements

Lenders generally have pretty strict cosigner home loan requirements, especially for borrowers with limited credit histories. They usually look for the following:

— Strong credit score: The minimum is typically 620, but higher is better.

— Stable income: Cosigners usually need incomes that could cover payments if necessary.

— Low DTI ratio: Lenders typically want to see debt-to-income (DTI) ratios of 43% or lower.

— U.S. citizenship or residency: Cosigners must typically hold U.S. citizenship or maintain permanent residency in the country.

— No conflicts of interest: People with financial interest in the transaction, such as sellers or realtors, typically cannot cosign.

Benefits of getting a cosigner on a mortgage 

Here are some key benefits of having a cosigner on your mortgage application:

— Improved chances of loan approval: A cosigner with good credit and a lower DTI can help you qualify. Lenders have more peace of mind knowing that multiple people are responsible for paying back the loan, so they’re more comfortable handing it out.

— Access to higher loan amounts: Combining financial profiles can increase the amount you can borrow.

— Better interest rates: Because lenders see applications backed by cosigners as less risky, they may offer better rates.

— Equity-building opportunities: Adding a cosigner can help you get on the property ladder earlier than you would alone, giving you the chance to start building equity sooner.

— Possibility for better terms: A cosigner can sometimes help you access lower fees or better repayment schedules.

Want to see how much you can qualify for? Get pre-approved for a Better mortgage in as little as three minutes.

...in as little as 3 minutes – no credit impact

Why you might want to cosign on someone’s mortgage 

Cosigning on someone else’s mortgage can help them get a loan they may not otherwise qualify for. It’s a generous thing to do, and there can also be benefits for cosigners beyond the reward of lending a helping hand.

Reasons you might want to consider cosigning on someone’s mortgage include:

— Family or relationship support: It can be incredibly rewarding to help a loved one achieve homeownership.

— Potential for credit-building: As long as the borrower makes their payments on time, it will benefit your credit score as well as theirs.

— No immediate need for credit: Cosigning will raise your DTI ratio, but this is usually manageable if you’re not planning any major purchases in the near future.

Risks of cosigning a mortgage 

Though cosigning supports your loved ones’ financial security, it doesn’t come without risks. Here are some critical implications of cosigning on someone else’s mortgage:

— Credit score impact: Late payments affect both parties’ credit scores.

— Financial liability: If the borrower defaults, you’re responsible for the entire loan.

— Risk of collateral loss: If you put up collateral to help the borrower qualify or get better terms, you may lose it if they stop making payments.

— Potential for relationship strain: Missed payments can lead to relationship problems with the person you cosign for.

— Impact on purchasing power: Cosigning means your DTI ratio will increase, which can limit your borrowing power if you need other loans.

— Difficulty removing yourself: Removing a cosigner from a home loan may require refinancing or selling.

How to protect yourself as a cosigner

You can never completely shelter yourself from financial risk when you cosign on a mortgage, but following the tips below can help:

— Review borrower finances: Assess the borrower’s credit history, income stability, and existing debts to see if they’re in a good position to handle the loan on their own.

— Request statement access: If possible, monitor payments on a regular basis to ensure they’re made on time.

— Maintain a payment reserve: Keep liquid funds available in case you need to cover missed payments.

— Create a written agreement: Work with the borrower to outline all expectations and responsibilities in writing.

— Check for cosigner release clauses: See whether your loan agreement allows the buyer to remove you from the loan.

Alternatives to getting a cosigner on a mortgage

Adding a cosigner isn’t your only option if you need help qualifying for a mortgage. Here are some alternatives to consider:

— Government-backed loans: FDA, USDA, and VA loans usually have more flexible terms.

— Homebuyer’s assistance: Look for grants and assistance programs offered through government entities, nonprofits, or mortgage companies.

— Help with the down payment: A larger down payment can improve your odds of qualifying, so consider saving up more or asking a relative or loved one for help.

Find your dream home with Better 🏠

Adding a cosigner to your mortgage can help you get approved, access better financing, and afford a bigger mortgage. Whether you’re applying with someone or alone, getting an online pre-approval from Better puts you in a great position to shop with confidence.

Better is a trusted online lender that offers fast, personalized, and flexible loan options. Let us help you secure your dream home.

...in as little as 3 minutes – no credit impact

FAQ

Can someone with bad credit still cosign a mortgage?

No — most lenders expect cosigners to have credit scores of at least 620, but higher scores can help strengthen the borrower’s chances of qualifying and securing better terms.

What rights does a cosigner have on a house?

Unlike co-borrowers, cosigners don’t have property ownership or usage rights. However, they take on full liability for the loan, so they’re on the hook if the borrower defaults.

Can a co-signer be removed from a mortgage later?

It depends. Some loans have built-in clauses that allow buyers to remove cosigners after a period of successful payments. But in most cases, removing a cosigner requires refinancing, selling, or modifying the existing loan.