Co-Signing 101

Due to higher housing prices, and higher rates, Orion’s brokers see many loans where the primary borrower enlists the help of a co-signer. A co-signer would typically be a parent or sibling, and that person is accepting all the responsibilities that the borrowers accepts. When the borrowers who plan to occupy the property do not have adequate income to qualify for the mortgage, the co-signer’s income and debts will be combined with the occupant borrower’s income and debts for mortgage qualifying purposes. This additional person(s) is referred to as a non-occupying co-signer.

He, she or they would go on the loan and may or may not choose to go on the title of the property along with the occupying borrowers. Orion’s experienced brokers warn their borrowers that if the borrower’s credit is not acceptable, help from a co-signer with good credit will not outweigh the bad credit of the prospective homebuyer.

It is normal for one or two homebuyers (usually related as in a marriage but not required) to buy and occupy a home, and both occupants would typically apply for and obtain the mortgage. They are referred to as borrower and co-borrower. The incomes and debts of the borrower and co-borrower are combined but the credit history and scores of each is examined individually. If one has a credit history that is unacceptable and does not meet the lender’s guidelines, that person may not be on the loan and their income cannot be counted toward mortgage qualification.

Brokers know that a co-signer is just another borrower and will have to provide tax returns and bank statements just like the primary borrowers. Their credit history will be scrutinized just like the primary borrowers. Orion’s brokers also know that it is a big responsibility to become a co-signer and should not be taken lightly. If a mortgage payment is made late by the primary borrower, the co-signer’s credit will reflect the late payment just like the borrower’s credit. And when buying a home or car or applying for credit, a co-signer’s purchasing power may be adversely affected as this new mortgage will now show up on the co-signer’s credit report as a debt obligation.

Before deciding whether a borrower will qualify for a mortgage or if a co-signer might help your borrower, be sure to consult with an Orion AE who has experience and expertise in conventional as well as FHA loans.

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