There’s nothing we know better than that it can be tough to get a mortgage, whether that’s because of student debt or having your credit score just a little too low.
Actually, there is one thing we know better than that: There are plenty of solutions to help you get into a home, if you know where to look. One of the most popular of these options is getting a cosigner—someone willing to put their name on the loan, essentially promising to bear the burden of debt if you can’t pay up.
As with all elements of the mortgage process, it’s best to know all of the facts when opting for a cosigner. There are plenty of myths floating around about the co-signing process, and we look to shed some light on common misconceptions.
If you’re thinking about looking for a cosigner, make sure you read this article.
MYTH NO. 1: “I need to be related to the cosigner.”
This is one of the most common misunderstandings that people have when considering a cosigner. The go-to individuals, at least for younger homebuyers, are parents. This has fed into the belief that only the most immediate of relatives—such as parents, siblings and grandparents—can qualify as cosigners.
This isn’t true. In fact, you can get anyone to cosign for you.
Of course, that doesn’t mean you should. Parents are the most popular option because they’re financially stable and they’re in frequent communication with their children. Failure to keep up on payments is more likely to wreck a relationship with a friend or more extended relative. Not to mention, are you willing to trust a friend with similar savings levels to serve as a parachute if you need help?
Even if it’s not required to use a relative for an FHA mortgage, there is a definite benefit: Relatives are eligible for up to 100 percent of the maximum loan amount. Non-relatives only qualify for up to 75 percent of the maximum loan amount.
MYTH NO. 2: “The cosigner will own my home as well.”
This is also untrue.
A cosigner may put their name on the mortgage agreement but they don’t put it on the title, which is the document that reflects actual ownership of the property. That’s why co-signing is essentially a favor on their part: They don’t receive much benefit as a result of it.
There is another option, however. For example, your beneficiary could choose to be a co-borrower instead of merely a cosigner. This means that their name does appear on the title, and they can take advantage of all the benefits/responsibilities of owning the property.
MYTH NO. 3: “My co-signer doesn’t need to live with me.”
This is sometimes false. And sometimes true. And it all depends on what kind of loan you acquire.
If you have an FHA-backed mortgage, a non-occupant cosigner can contribute all of their income toward your qualifying loan amount.
Most conventional mortgages, however, require that a cosigner be a co-occupant as well, living at the property that they’re vouching for. Some lenders are willing to make exceptions but that comes with asterisks as well, such as limiting the cosigner’s income contribution to the qualifying loan amount to 50 percent. For example, a $60,000 income becomes worth only $30,000 for your cause.
MYTH NO. 4: “My cosigner will balance out my bad credit.”
This is a huge misconception and one that proves to be a letdown for many.
If someone has a bad credit rating, such as 590, they may believe that bringing on a cosigner with a much higher credit rating will help them qualify for a mortgage. They misunderstand the purpose of a cosigner.
Your debt-to-income ratio is a strong factor when you apply for a mortgage. Some new homebuyers might not have a huge income, so they have a higher ratio, which hurts their cause. A cosigner can contribute their income for consideration alongside your own, greatly shrinking your DTI and improving how much home you can afford.
They can’t fix your credit. You could get Warren Buffett to cosign on your mortgage (we meant it when we said “anyone”) but his billions couldn’t save you from your subpar credit score. That’s on you and you alone.
With our years of experience, we are completely focused
on getting you the best deal.