I often get asked if a cosigner can help a person qualify for a mortgage. As is often the case in the home loan industry my answer is “it depends”.
Cosigners and poor credit
Can a person use a cosigner to overcome low credit scores? Unfortunately, the answer is no. That’s because a mortgage underwriter will default to the lower of the two credit scores in a joint mortgage application.
For example, let’s assume we receive an application from a homebuyer who has a credit score of 550 which is too low to qualify for a conventional loan. If their parents, who happen to have excellent credit scores, submit an application as a cosigner it does not change the credit decision because the underwriter will still use the 550 credit score in evaluating the application.
When cosigners can help
Typically, cosigners are included with a loan application when a person does not have enough qualifying income to be approved for a loan.
Let’s assume we have a homebuyer who is in a new career and does not have sufficient history of earning their income according to underwriting guidelines. In that instance they may ask a parent or sibling to cosign. We can then measure the cosigner’s income and existing obligations and use additional cash-flow to help the homebuyer qualify.
Cosigners and down payment help
Regarding down payments, theoretically a cosigner can help with a down payment for a homebuyer. However, most loan programs allow for gift funds from family so there’s really no reason to go through the trouble of having the family member cosign if they’re not required to.
Primary residence only
Cosigners can typically only be used on a loan that is connected to a primary residence, not for buying rental property. Furthermore, most jumbo mortgage loan programs have restrictions against using cosigners even if the loan is being made on a primary residence.
Cosigners be aware
Cosigners need to know that they are going to be obligated on that mortgage and that the account will show on their credit record. Regardless of any agreements between the homebuyer and cosigner if any party fails to make payments on the home loan and causes a default that negative credit information will appear on both party’s credit reports.
If you have questions about qualifying for a mortgage or using a cosigner for your own situation, I would love to be a resource. Contact me today for a no obligation conversation.