Modus Mortgage

What does it Mean to Cosign on a Mortgage

Have you ever been asked to cosign a loan application by someone who is trying to have a house loan approved? You may be confused as to why they would ask or how this will effect you. This post will help you in understanding both of these topics in greater detail.

Why Were You Asked to Cosign?

These are the top reasons that mortgage applicants seek a co-borrower:

  • Income: People may seek a cosigner in order to increase the amount of income they may include on their mortgage application. Increased income on the application can make it easier to get accepted or to borrow more money from the lender, depending on the circumstances.
  • Credit score: Having someone with a higher credit score may help to secure a lower rate. 
  • Employment: Mortgage approval might be hampered by a lack of or poor job history. Having a cosigner with a favorable job history might make it easier to get a mortgage.

Cosigner Responsibilities

A non-occupant refers to a borrower who will not reside in the home, whereas the occupant does. Here’s how that affects the loan:

For Conventional Loans

A non-occupant co-borrower on a conventional loan is on the loan but is not on the title of the property. The credit report of the co-borrower is obtained, and the score is used to assess loan eligibility and qualification. The non-occupant co-borrower, on the other hand, is not the legal owner of the property.

For FHA Loans

When it comes to a non-occupant co-borrower, there are certain limits when it comes to an FHA loan. First, you are permitted to have up to two non-occupying co-applicants. Secondly, if the down payment is less than 20%, the individual who will be inhabiting the property must have no more than a 70% debt-to-income ratio when the property is purchased. Thirdly, non-occupant cosigners must be on both the title and the loan, and the property must be a single-family residence. Additionally, the non-occupant co-borrower must be a relative. 

The Bottom Line

It goes without saying that this article does not cover all of the requirements for cosigning on a mortgage. However, it will assist you in better understanding your obligations as a cosigner as well as how to qualify for a cosigner. 

Need help getting approved for a home loan on your own or with a cosigner? We’re here to help! Contact us today for all your mortgage needs.

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