Co-borrowers can make mortgage problems go away
Buying a home can be difficult. Modest incomes, poor creditworthiness, and high home prices can get in the way.
But if you can find one Co-borrower, these problems can suddenly go away.
A co-borrower applies for the loan from you so that you can qualify based on their higher creditworthiness or higher income.
But that person is also on the hook when you cannot afford your mortgage payments. Therefore, first check your own financing options.
Have lots of loans little or no deposit and flexible credit requirements.
Perhaps you are more qualified to buy a home now than you think.
Check your eligibility to buy a home today (June 24, 2021)
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A co-borrower is someone who takes out a mortgage loan with you so that you can afford the home. A co-borrower can help you qualify for the loan by adding a stronger credit rating or higher income. Or they can help you fund a down payment. A co-borrower does not have to live in the house with you.
As a co-borrower, a Co-signer has a legal obligation to repay the loan if you cannot. However, a co-signer is not expected to make loan payments. They serve as a surety for the loan without ownership of the property. And unlike a co-tenant, a co-signer will not live in the property. Because of this, many end up taking out a mortgage with their parents.
If you just need help qualifying for a loan and can make the mortgage payments yourself, finding a co-signer is probably your best bet. However, if you need help paying a mortgage and are ready to share the ownership (and equity) of the home, you need a co-borrower.
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Two types of co-borrowers
Rick Scherer, CEO of OnTo Mortgage, says there are two types of co-borrowers.
“A co-debtor of an inmate is someone who buys the house with you and lives in the property as their main residence.
“A non-resident co-borrower will not live in the property, but will help you qualify and pay for the property, ”he says.
Bruce Ailion, Broker and attorney, adds that a co-borrower is “jointly and severally liable for the debts of the loan. If you as the borrower are not able to repay the loan, the co-borrower will be asked to settle this debt. ”
Marvin Smith with DKR Group LLC is the author of “The Psychology of Credit”. He says the co-borrower’s name will appear on your loan documents and in the title of the property.
“That person’s income and credit history will be used to help you qualify for the loan,” says Smith.
When a first-time home buyer may need a co-borrower
There are many scenarios today where co-borrowing can make sense.
- Young shoppers in expensive cities
- First time home buyers with many Student debt
- pensioner with low income flow
- Self-employed People without a tax return
For example, maybe you are a young worker who wants to live in a big city where property prices are too high.
Or you recently graduated with a high student debt; Now you need help qualifying for a mortgage.
Suppose you are a retired parent with little or no income. If you can get your adult child to be an accomplice, you can downsize or buy another home.
“All of these people are great candidates for finding a no-use co-borrower,” says Scherer.
“Another scenario we sometimes see is a no-income college student whose parents want him to live in a house they will jointly own.”
Or say you are self-employed. Proving adequate income to a lender can be difficult.
“But if a family member jumps on the application with you, it could help you qualify,” adds Scherer.
Good fellow borrower candidates for a first time homebuyer
Ailion says most co-borrower situations involve family members and personal relationships.
“Today it always takes more than an income to qualify for a home. Relatives can help, ”explains Ailion.
“Today it always takes more than an income to qualify for a home. Relatives can help. ”- Bruse Ailion, broker and lawyer
But in some situations, people unrelated to you can also be good co-borrowers.
“This often happens in an investment environment,” says Ailion.
“A person with poor credit might find a great house to flip, but they lack the money or credit to buy that house. In this way you can get an investor – someone you have never met before – who will raise the money and credit for a share of the profit on the property’s sale. ”
Scherer suggests that the ideal prospect is someone with high income, low debt, and good credit.
The ideal co-borrower is someone with high income, low debt, and good credit (at least 740+).
“You want to ask someone who has enough income to wash away their own expenses and still have a lot of money left over to support their balance sheet,” says Scherer.
“This person shouldn’t have a lot of debt. And he or she should have a higher credit score than you. Your score should be at least over 740. ”
Your ultimate goal should be to get the co-borrower out of the loan
Prepare for any co-borrower questions you may ask.
“Anyone who would like to help you would like to know your exit strategy and the plan to remove it from future liability,” says Scherer.
You’ll also want to talk about what happens when it’s time to sell the house.
For example, if it is a non-using co-borrower, how much equity should that person pocket?
This is especially important if you are purchasing an investment property as a joint venture with a co-borrower. You should consolidate details about the with-profits before anyone gives their name on the loan.
Where can I get a home loan with a co-borrower?
Scherer says a vacant co-loan loan is very common.
“It is offered on conventional loans by both Fannie Mae and Freddie Mac,” notes Scherer. “And some other loan programs offer them too, like an FHA loan. But there are certain restrictions. ”
Ailion points out that virtually all lenders allow borrowers to be filled with a loan. And he says co-loan mortgages are also offered through portfolio loans from banks and credit unions.
Alternative credit options for those with poor creditworthiness or low income
Adam Spigelman is Vice President at Planet Home Lending. He says there are other ways to add roommate or partner income to your mortgage if you choose not to use a co-borrower.
“One option is Fannie Mae’s HomeReady program“, Says Spigelmann. “This is a low down payment mortgage that allows you to use the marginal income for up to 30% of the income you need on the home loan.”
- Fannie Mae HomeReady Loan
- Only 3% less
- Add a roommate’s income to qualify
- Cover up to 100% of the deposit with gift credit
This could be a good solution for a couple with a partner who has credit problems and cannot qualify for a mortgage.
“It would also appeal to a graduate with college debt who doesn’t want to share the house but needs an extra income to qualify,” suggests Spigelman.
Should You Buy a Home With a Co-borrower?
Using a co-borrower may be the only way to qualify for a home ownership.
But relationships among co-borrowers can be difficult to navigate. And remember – this person is on the hook when you can’t pay your mortgage.
So before you start looking for a co-borrower, see if you qualify for one of the many Programs for first-time home buyers available.
Even with below average credit or a modest income, it may be easier to buy a home than you think.
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