Buying a house is an exciting milestone in life. However, the process can be daunting especially if you have limited credit history or a low credit score. This is where a cosigner can help. A cosigner is someone who agrees to be legally responsible for repaying your mortgage if you can’t make the payments yourself. Cosigning a loan allows homebuyers with less-than-perfect credit to still qualify for a mortgage and achieve the dream of homeownership.
What is a Cosigner and How Do They Help?
A cosigner sometimes called a co-borrower, is a person who signs onto your mortgage loan application with you. They don’t have to live in the home with you. By adding their name income, assets, debts, and credit profile to your application, they boost your chances of getting approved.
Cosigners help homebuyers who may not qualify for a mortgage on their own due to:
- Limited credit history
- Low credit scores
- High debt-to-income ratios
- Insufficient income
When you have a cosigner with good credit, lenders see you as less of a risk and are more likely to give you a loan.
Do I Still Need Good Credit if I Have a Cosigner?
The short answer is no, you don’t need good credit to get a mortgage if you have someone cosigning for you. However, your cosigner does need good credit.
When reviewing a loan application with a cosigner, the lender will consider both applicants’ credit scores, income, debts, and assets. They want to see that between the two of you, there is enough income to afford the monthly payments and minimal risk of default.
Credit doesn’t have to be perfect, but lenders do need a certain minimum score, even if you have a cosigner. You need a credit score of at least 500 to get an FHA loan. Conventional loans require a minimum score of 620. VA and USDA loans need 580. Jumbo loans start at 680.
Benefits of Using a Cosigner When Buying a House
Adding a cosigner to your mortgage application comes with several advantages:
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Increased Buying Power: You may qualify for a larger loan amount and be able to afford a more expensive home.
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Lower Interest Rates: Better credit means better rates. With a cosigner, you can likely score a lower rate.
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Higher Chances of Approval: Lenders are more likely to give you a loan if you have a cosigner. This makes an approval more likely.
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Credit Building: As long as payments are made on time, having a mortgage in both names will help build credit.
Risks of Having a Cosigner on Your Mortgage
Cosigning is not without downsides for both parties:
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The cosigner is 100% liable for the debt. If you default, they are responsible for making payments. This could damage their credit.
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Even on-time payments can impact their credit. The new debt lowers their credit utilization ratio.
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They may have trouble qualifying for their own loans in the future due to increased debt burden.
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Strained relationships if you miss payments and they have to cover you.
Who Can Be a Cosigner?
Almost anyone can cosign your mortgage as long as they:
- Are a U.S. citizen or lawful permanent resident
- Have a good credit score
- Have verifiable income and minimal debts
- Are willing to sign the mortgage note and accept legal liability
Family members like parents, siblings, grandparents are common cosigners. But you can also use a spouse, long-term partner, or trusted friend.
Cosigner Requirements
Here are the typical eligibility standards cosigners must meet:
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Credit Score: For FHA loans, at least 580. For conventional loans, a minimum of 620. VA and USDA loans need a 580 score. Jumbo loans start at 680.
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Debt-to-Income Ratio: Their individual DTI must be 43% or lower. Combined with yours, under 50% for conventional loans or 55% for FHA.
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Income: Stable income for at least 2 years. Income is combined with yours to qualify.
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Assets: Enough assets to cover down payment and closing costs.
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Citizenship: U.S. citizen, lawful permanent resident or legal resident alien.
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Occupancy: Not required to live in the home for most loans. FHA allows relatives or close friends.
Alternatives if You Can’t Find a Cosigner
If you don’t have a cosigner, don’t fret. Here are some options:
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Government-Backed Loans like FHA, VA, and USDA relax requirements for credit, income, and down payment.
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Down Payment Assistance programs provide grants and low interest loans to cover your down payment.
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Improve Your Credit by paying down debts and making on-time payments. A higher score means better loan terms.
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Apply with Multiple Lenders as each has different qualifying benchmarks. Expand your options.
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Lower Your Home Budget to reduce the income needed to qualify for a certain loan amount.
Is a Cosigner Right for You?
Cosigning a mortgage is a big commitment with risks for both parties. Make sure you understand the pros, cons, and alternatives before deciding if it’s the right move. With prudent planning, you may be able to reach your homebuying goals even without a cosigner’s help.
When should I add a co-signer to my home loan?
Adding a co-signer to your home loan can be helpful in certain situations, especially if you might not qualify on your own. Consider a co-signer if:
- Your income is too low to qualify for the loan alone.
- Your income is sufficient, but your debts are too high, or your credit history is limited.
- You need assistance with the down payment and closing costs.
To avoid last-minute loan denial, plan ahead. Get pre-approved before shopping for a home to understand how much you can afford, with or without a co-signer. A verified pre-approval letter from a loan decision maker at NewCastle Home Loans will give you confidence in your home-buying journey.
How much do I need for a down payment when I have a mortgage co-signer?
The down payment amount depends on the property type, loan type, and whether a co-signer is part of the application. Heres what you need to know:
- Conventional Loans: You can buy a 1-to-4-unit home with a co-signer and a minimum 5% down payment.
- FHA Loans: Using a co-signer, you can purchase a 1-unit property with as little as 3.5% down. However, if youre buying a 2-to-4-unit property, the minimum down payment increases to 25%.
The chart below outlines the down payment requirements for conventional and FHA loans when using a co-signer. Note that adding a co-signer to an FHA loan for a multi-unit property significantly raises the down payment requirement from 3.5% to 25%.
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Down payment with a mortgage co-signer |
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| Property type | Loan type | Down payment |
|
1-Unit: house, townhome, condo |
Conventional | 5% |
| FHA | 3.5% | |
| 2-to-4-unit property | Conventional | 5% |
| FHA | 25% | |
Cosigning a mortgage: Can a cosigner help buy you a house?
FAQ
Can a mortgage co-signer help you buy a house?
A mortgage co-signer may help you meet a lender’s debt-to-income requirements when you’re trying to buy a house. Consider this example that compares buying alone against buying with a co-signer with less debt.
Should you co-sign a mortgage?
Some of the biggest risks of co-signing a mortgage are listed below: The only good thing about being a co-signer is that your credit score will go up if the borrower builds a good history of paying on time. But as a co-signer, you won’t have much recourse if they don’t stay on top of the loan.
Can I get a new mortgage without a co-signer?
Once you’ve made consistent payments, improved your credit, and increased your income, you can apply for a new mortgage to keep the property under your name without the co-signer. Keep in mind that the ability to remove a co-signer may also depend on the terms of your mortgage agreement.
Can a co-signer with a higher income qualify for a mortgage?
A co-signer with a higher income can help you qualify for a mortgage. Lenders look at your income, credit score, and other things when you apply for a loan to see if you can afford the monthly payments. If your income doesn’t meet the lender’s requirements, a co-signer’s additional income can strengthen your application.
Can I buy a home after co-signing on another mortgage?
There are two times when your DTI won’t hurt your chances of getting an FHA loan: If you want to buy your first home after co-signing on another mortgage, your DTI won’t matter. The first hard credit inquiry will usually stop being important after one year, even though it can stay on your report for up to two years.
Can a co-signer get a mortgage if you have a good deed?
But now that you’re looking for a mortgage, your good deed can make it more challenging to become a homeowner. You can still get approved for a mortgage as a co-signer, but you may need to take extra steps to get there.
Can you buy a house with no credit and a co-signer?
No. The reason a borrower must have a co-signer is because the borrower’s credit is not good enough unless someone with good credit guarantees the loan payments. Someone with no credit and no job is not a feasible back up for any lender to approve a loan in USA.
What credit score is needed to buy a house with a cosigner?
Co-signers usually need good to excellent credit. A minimum credit score of 670 is often required.Oct 1, 2024
Do you need credit if you have a cosigner?
It’s definitely easier—especially if you don’t have a credit history or are just now starting to establish one. While having a co-signer does not guarantee you will be approved, if they have a high credit score and good credit history, lenders are far more likely to trust you as a borrower.
Does being a co-signer affect buying a house?