When you’re trying to buy a home, it’s important to come from a place of problem-solving and positivity. There may be obstacles along the way, but there are often alternatives that can help you overcome them. If you’re struggling to qualify for a mortgage that would cover a home in your prospective market and price range, bringing in a cosigner on the mortgage may make a game-changing difference in the approval process.

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What is a cosigner on a mortgage?

In the event that you are unable to qualify for a mortgage on your own, a cosigner allows you to show more income and a more extensive credit history to make you a more attractive applicant to a mortgage lender. Much of the lender’s focus is on minimizing risk and a cosigner allows them to do that by reassuring them that there is someone else to pay the mortgage in the event that you’re unable to.

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How does cosigning work?

Just like the primary applicant, a cosigner will provide financial information, including income, assets, and debt information. In the event that the primary borrower falls behind on the mortgage payments, the cosigner will be expected to take on the responsibility of providing the mortgage payments until the primary borrower is able to get caught up.

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A cosigner is not only helpful in obtaining approval for the loan itself; they can also help the primary borrower qualify for a higher loan amount. This is helpful for borrowers who are applying for a loan in an expensive market where they may not be able to obtain approval otherwise. In addition, a cosigner can make the borrower more attractive to the lender, resulting in a more favorable interest rate.

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For first-time homebuyers with limited credit history, a cosigner can make all the difference in securing approval for a mortgage and helping to build their credit history. This is a great option for college students whose parents want to purchase a condo as an investment property or for young professionals whose parents want to help them begin building equity through homeownership. 

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What's the difference between a cosigner and a co-borrower?

A cosigner has no stake in the property; their role is simply to secure the mortgage approval and provide reassurance throughout the loan term that the mortgage will be paid on time. By contrast, a co-borrower has an ownership interest in the property and, along with the primary borrower, is equally responsible for the property.

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A cosigner might be someone like a parent or an older relative who acts as a cosigner in order to smooth the way for the primary borrower to purchase a home. A co-borrower is more likely to be a significant other or roommate who will have equal rights and access to the property.

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When to use a cosigner

There are a variety of scenarios when a cosigner makes sense, including the following:

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• You are looking to purchase a home in an expensive market and need to be approved for more money than you currently qualify for.
• You are looking for the opportunity to begin building equity by investing in a home rather than paying rent.
• You are just starting your career and do not yet have an extensive enough job history to be approved for a mortgage on your own.
• You anticipate your income will rise in the years to come, allowing you to refinance into your own home loan.
• You’re self-employed and do not have W2 income to help you qualify for a mortgage.
• You have a high debt-to-income ratio or a low credit score and are unable to qualify for a mortgage.

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Pros and cons of cosigning a mortgage

While having a cosigner on your mortgage can solve a lot of problems for your home purchase process, it’s not a cure-all. Here are some advantages and disadvantages of asking a friend or family member to cosign:

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Pros

• Cosigning allows the primary borrower to build their credit and obtain a home they might not be able to afford otherwise.
• Cosigning allows the primary borrower to begin building equity rather than paying out rent to a landlord.
• Cosigning allows the primary borrower the freedom and flexibility of homeownership.
• The primary borrower can refinance the home on their own once they are able to qualify for a mortgage alone. This can make it a good option for a borrower who is experiencing a temporary financial hardship or adjustment but needs to purchase a home.

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Cons

• The cosigner will have a higher debt-to-income ratio and may be unable to borrow for their own financial needs during the time that they are listed as a cosigner on the mortgage.
• The cosigner’s credit will take a hit if you default on the mortgage and they are unable to carry the payments.
• Your personal relationship with the cosigner may be affected if you are unable to make the payments on the home, causing them to either pay the mortgage or seek financial relief through bankruptcy.

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Alternatives to using a cosigner

If you’ve ever considered bringing in a renter or roommate, you may be able to avoid having a cosigner on your home mortgage. You may choose to purchase a multi-family property or one with a basement or garage apartment or an alternative dwelling unit (ADU). You can then rent out this part of the property and use the rental income to qualify for your mortgage.

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Alternatively, if you have a friend or family member living with you, you may be able to claim “boarder” income, especially if they have helped pay part of your expenses in the past. Talk to your lender about the possibilities of using either of these income sources to avoid bringing in a cosigner.

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