If a borrower has a weaker credit score, or their income does not support the mortgage amount they have applied for, a co-signer may be required. A co-signer is an additional borrower that is put onto the mortgage application in order to strengthen the approval of the mortgage financing. A strong co-signer will make a mortgage application more appealing to potential lenders.
You can have more than one co-signer on an application if you wish. An example of this is would be two parents co-signing for their child who is buying their first home.
Remember, the purpose of a co-signer is to improve the odds of a mortgage approval, so a weak borrower would not make a good co-signer in this situation.
Who is a Strong Co-Signer?
What makes a strong co-signer is dependent on why a co-signer is needed. If the main borrower’s credit is weak, then the lender will be looking for a co-signer who has a strong credit history. If the primary borrower’s qualifying income is hard to prove, the co-signer will have to have a strong reliable income source with minimal debt. Essentially, a good co-signer is strong where the borrower is weak.
How is the Co-Signer Affected?
A co-signer on a mortgage is 100% responsible for that debt even if the primary borrower makes all of the payments from their own bank account. In the case of a mortgage loan, this not only applies to the principle and interest payments, but also to the property taxes and condo fees, if applicable.
If the primary borrower fails to make a payment the lender will call the co-signer and it will be up to them to make the payment. Lenders often don't notify the co-signer of any delinquent payments until the loan is already significantly behind. This will negatively effect the credit score of both the borrower and the co-signer.
Because of this, a co-signer needs to be aware of all the costs associated with a home and be confident in the borrower’s ability to keep up with their mortgage payments.