What Is a Mortgage Cosigner?
A mortgage cosigner is a person who accepts financial responsibility for a mortgage loan if the primary borrower fails to make payments. In most cases, people cosign a mortgage to help a friend or family member qualify for the loan, which they would not be able to do without a cosigner, or aid them in obtaining a lower interest rate. In general, a bank will require all of the same financial information from a mortgage cosigner as it would from the primary borrower. Unlike a co-borrower, a mortgage cosigner typically has no legal claim to the property in question, although any late payments or a foreclosure will affect the mortgage cosigner in the same way as it does the primary borrower.
It can be extremely difficult for a person with no credit history or poor credit to obtain a mortgage through a financial institution, especially if he or she lacks a significant down payment. In many cases, a financial institution or bank will allow the primary borrower to use a mortgage cosigner to make up for any financial difficulties that the primary borrower has had in the past. Having a cosigner may also allow the primary borrower to obtain a lower interest rate than he or she may be able to on his or her own. This is typically only possible if the cosigner has a significantly higher credit score and debt-to-income ratio than the primary borrower.
During the approval process for a mortgage, the cosigner will have to provide the bank or financial institution with all of the same financial information as the primary borrower. His or her credit report will be checked and his or her income verified. If the mortgage cosigner already owns another property, the income will typically have to be high enough for the cosigner to make both mortgage payments in the event that the primary borrower defaults.
In most cases, a mortgage cosigner is not the same as a co-borrower. While the cosigner has all of the same financial responsibilities as the primary borrower, he or she rarely has any claim on the property in question unless a legal contract states otherwise. Whether or not the cosigner lives on the property is generally up to the cosigner and primary borrower. Unlike a co-borrower, in which more than one person’s income is taken into account when determining how high of a loan a person can obtain, the cosigner’s income is not factored in when determining the amount of the loan.
Acting as a mortgage cosigner is mainly for the benefit of the primary borrower. There is typically little financial benefit for the cosigner. If the primary borrower makes late payments or enters into foreclosure, the cosigner is legally responsible for the payments, and these instances will appear on his or her credit report or financial history, and could cause him or her legal issues depending on his or her jurisdiction.
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