First-time home buyers can face challenges when it comes to mortgage approval. For example, if you’re a young adult, you typically have a shorter career history and fewer cash reserves than your Gen-X or Boomer-generation peers. Your credit history may be lean. In short, it can be harder to qualify for the loan you’d like to obtain.
Add climbing home prices to the mix, and it’s easy to see why more buyers have been turning co-signers for mortgage approval. A study by ATTOM Data Solutions shows that the use of non-spouse co-signers has been rising steadily for the past three years. In a separate study, about 26% of FHA mortgage borrowers used family assistance for loan approval in 2018.
Having a co-signer on the mortgage can offer numerous benefits to the primary borrower. The co-signer’s promise to back up the loan can mean easier qualifying, or provide support for a larger loan amount. On FHA-insured mortgages, all of a co-signer’s income can be used in calculating the qualifying loan amount – even without the co-signer living in the home, or having any ownership interest in the property.
There’s virtually no drawback for the primary borrower. Except, perhaps, the misunderstandings that can occur between the parties involved. Uncle Bob might be loaded, but you might want to think twice about having him co-sign, if he’s going to insert himself in every home decision.
The downsides for the co-signer are significant. If the primary borrower cannot make the mortgage payments, the co-signer must make the mortgage payments, or face the consequences of a mortgage default. The co-signer is on the hook for the life of the loan.
It’s important to note the distinction between a co-signer and a co-borrower. In a lender’s eyes, a co-borrower is a different animal. A co-borrower has ownership interest in the property. Generally, co-borrowers must have an established relationship with the primary borrower – such as being a blood relative, spouse, or a significant other. Even a close friend is allowable, but some further detail may be required by underwriting. A co-borrower cannot be someone who has a vested interest in the property, but lacks a personal relationship with you. (Such as a home builder, home seller or real estate agent.)
The exact benefit of having a co-signer or co-borrower varies depending on the type of mortgage, and your own personal situation. If your credit score is poor, having a co-signer or co-borrower may not be enough for a mortgage approval.
If you don’t have someone willing to co-sign for you, there are other sources of help. First-time home buyer programs can offer you down payment assistance and financing options. Our website has a comprehensive list of home buyer programs to help you get started!
When you’re ready to explore your mortgage options, we’ll be happy to refer you to trustworthy, Chicago area lenders! Contact us for a mortgage referral today!
StartingPoint Realty – guidance for first-time home buyers!
StartingPoint Realty specializes in serving first-time home buyers throughout Chicago and the Northwest suburbs. We provide complete education and guidance during the entire home buying process! Attend a free home buying seminar to begin your path to home ownership!
We provide a number of terrific resources to help you become a successful home buyer! Check out our list of home buyer assistance programs on our website!
Always feel welcome to contact us for help with your Chicago home buying questions!
Ryan Gable Broker/CEO Starting Point Realty
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