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Cosigning a mortgage can help a family member or friend buy a home or qualify for more favorable terms. While it can be a fulfilling way to support others, you should also be aware of the risk you're taking on. Even if the primary borrower never misses a payment, having the mortgage on your credit report could make taking out a loan or line of credit of your own more difficult.
How Does Cosigning for a Mortgage Work?
When you cosign for a mortgage, you agree to take full financial responsibility for the mortgage payments if the primary borrower stops paying. You won't share ownership of the home, however, and your name won't be on the title.
In contrast, co-borrowers (also known as co-applicants or joint applicants) share both the financial liability and ownership of the home. A joint applicant arrangement is common among spouses, partners or friends who want to buy and live in a home together, although there can also be non-occupant borrowers on a mortgage.
Mortgage cosigning may be more common when someone wants to help a family member buy a home. For example, a parent may cosign a mortgage for a child who is having trouble qualifying on their own—perhaps because they're new in their career, self-employed or recently divorced.
Applicants can often benefit from a mortgage cosigner when they don't have a steady income or enough income to qualify on their own. A cosigner with a steady paycheck and low debt-to-income ratio (DTI) may give the lender assurance that someone will be able to make the mortgage payments. The cosigner may also help with a down payment, although the lender may require the primary borrower to make the minimum down payment.
The cosigner's credit scores will also be considered. However, mortgage lenders generally look at both applicants' credit scores from all three credit bureaus (Experian, TransUnion and Equifax) and use the lower middle score of the two. As a result, a cosigner won't necessarily be a big help if the primary borrower doesn't have a high enough credit score.
Who Can Cosign a Mortgage?
The requirement to cosign on a mortgage can vary depending on the lender and the type of mortgage.
For example, some lenders require the cosigner to be a close friend or relative of the primary borrower, such as a parent or sibling. Lenders may forbid cosigners who have a financial interest in the sale of the home, such as the home seller or a real estate agent.
Cosigners generally need to meet the minimum credit score requirements for the loan—620 for conventional loans and 500 to 580 for government-backed Federal Housing Administration (FHA) loans.
The cosigner will also need to share copies of identifying documents and financial records and agree to a credit check. Required documents may include a government-issued ID, Social Security card, tax returns and bank statements.
How Cosigning Can Affect Your Credit
Because you're taking on financial responsibility for the loan, cosigning a mortgage can impact your credit as if you were taking out a mortgage for yourself.
- The initial credit checks and hard inquiries may hurt your scores a little
- A new, large outstanding balance can also lead to an initial dip
- On-time mortgage payments can help your credit
- Late payments or a foreclosure can hurt your credit
- The mortgage can impact your credit for the lifetime of the loan and up to 10 years after it's paid off or refinanced
Your credit scores aside, other creditors may include the mortgage payments in your DTI, even if you aren't making the payments yourself. A high DTI doesn't impact your credit scores, but it can make qualifying for a new loan or line of credit more difficult.
What Are the Pros and Cons of Cosigning a Mortgage?
Cosigning a mortgage involves taking on a lot of risk with little financial upside. If you're considering cosigning, your main motivation should be helping someone buy a home.
Benefits of Cosigning a Mortgage
- You can help a family member or friend buy a home
- The on-time mortgage payments may help your credit
Drawbacks of Cosigning a Mortgage
- You're legally responsible for the debt
- You don't have a legal claim on the home
- Your creditworthiness will be impacted
- Your relationship may be strained if the primary borrower can't afford the payments
It will also be difficult to get your name off the mortgage after you cosign. You may need to wait until the primary borrower can qualify to refinance the mortgage on their own.
Check Your Credit Before Offering
While cosigners primarily benefit mortgage applicants when they have a steady income and low DTI, your credit scores will still be important. You can check your FICO® Score☉ 8 from Experian for free to get a sense of where you're at right now. If you have time to prepare, you may also want to focus on getting your finances ready. Paying off other outstanding debts, increasing your income and improving your credit scores may make you more valuable as a cosigner.