What is a co-borrower on a mortgage?

In simple terms, a co-borrower is someone who applies for a loan along with the primary borrower and shares the repayment responsibilities. In this blog, we’ll review both sides of co-borrowing. You’ll learn about the roles of co-borrowers versus co-signers, explore the concept of non-occupant co-borrowers and find out how many people can be on a mortgage as co-applicants.

Generally, both co-borrowers plan to live in the home and take on the responsibility for making the mortgage payments. However, the primary borrower is the one to typically complete the loan application first and thus serves as the main point of contact for the loan. For both borrowers, the lender considers income, credit history and financial stability as crucial factors for loan approval and terms. However, as the primary borrower, you’ll also be responsible for being named on the homeowner’s insurance and property taxes. If there are any changes in your financial situation that might affect your ability to handle these responsibilities, it’s important to communicate openly with your loan officer.

When you take out a loan with a co-borrower—frequently a spouse or partner—you jointly own the property and share responsibility for repaying the loan. If you have a co-borrower, you enjoy several benefits. First, combining your incomes can potentially qualify you for a larger loan amount or better loan terms. Second, having a co-borrower means that you’re equally liable, which can be helpful if one of you faces financial difficulties. Lastly, co-borrowing is a great opportunity for both of you to build or improve your credit scores together.

If you need financial assistance from a co-borrower who does not plan to live with you, a non-occupant co-borrower is your solution. They can strengthen your application and help you qualify for a mortgage, especially if you have a lower credit score. However, keep in mind that tax advantages typically reserved for homeowners may not be available to non-occupant co-borrowers. For specifics, speak to your loan officer about Federal Housing Authority (FHA) and conventional loan non-occupant co-borrower requirements.

While both co-borrowers and co-signers may help you secure a mortgage, their roles and obligations as co-applicants differ. A co-signer is someone who agrees to pay back the loan if you, as the primary borrower, default. They do not hold an ownership interest in the property, however a co-borrower would.

Key Points regarding co-signers:

Support role: Their income and creditworthiness provide additional support to the primary borrower, especially if the co-signer has a stronger credit profile.

Liability: Co-signers are liable for the loan but do not have rights to the property.

Credit risk: The co-signer’s credit score can be negatively affected if the primary borrower fails to make payments.

Your lender’s policies and the specific loan type will determine how many co-borrowers can be on a mortgage. Generally, lenders allow up to two co-borrowers, but some may permit more if the borrowers can collectively meet the lending criteria. More co-borrowers can mean a stronger financial base, but each additional borrower also adds complexity to your loan agreement.

If you’re thinking about becoming a co-borrower on a mortgage, there are a few essential issues to consider:

Financial commitment: Keep in mind that a mortgage is a long-term commitment that can span up to 30 years. It’s essential to be prepared to fulfill your obligations.

Joint liability: Remember that co-borrowers share equal responsibility for loan repayment. Take the time to assess the potential effect it may have on your financial well-being.

Relationship dynamics: Maintaining open lines of communication between borrowers ensures you can effectively handle any potential financial issues that may arise throughout the loan term.

Exit strategy: It’s always wise to have a plan in place for selling or refinancing the property in case the relationship among borrowers changes.

When applying for a mortgage with a co-borrower, it’s helpful to prepare together, collecting the necessary documents, including valid IDs, bank statements, pay stubs, and tax returns. It’s also important that both of you check your credit reports to ensure accuracy. Next, decide how payments will be made and share all documentation, lender contact information and account details.

If you’re considering entering a co-borrowing relationship with someone other than your spouse, it’s recommended you seek legal counsel from an attorney specializing in real estate law. They can help you understand the full scope of your obligations and provide a written agreement outlining the responsibilities and contingencies related to the mortgage.

With the right preparation and understanding, a co-borrowing situation can make it easier to secure a mortgage and achieve homeownership. Reach out to your local Guild loan officer to learn more.