In this post, we’ll explain what a co-borrower is, who can be one, what the responsibility entails, and when it can/can’t help you get your loan approved.

What is a co-borrower?

A co-borrower is an additional borrower who is added to your mortgage to act as a guarantor for your loan. Becoming a guarantor means they will be legally obligated to make loan payments if you do not.

Who can be a co-borrower?

Anyone who is willing to take responsibility for your loan can sign on as a co-borrower. It is not necessary that they live in the home with you, both occupying and non-occupying co-borrowers are allowed for most loan types. In most cases, co-borrowers are a parent or other family member. This is due to the amount of trust required for a successful co-borrower relationship.

The decision to be a co-borrower, or to add one to your mortgage, should never be taken lightly. There is financial risk involved for both parties, and your relationship can suffer if things go wrong. That said, many people successfully use co-borrowers to get their home. It is a perfectly sound strategy, as long as all parties understand their role and are willing to accept the pros and cons of the arrangement.

Additional impact of being a co-borrower

Individuals considering acting as a co-borrower should understand that their credit score could be affected (both positively or negatively) depending on timeliness of loan payments, and that their personal debt-to-income ratio would also include the mortgage payment should they wish to apply for a new loan themselves.

What can having a co-borrower fix?

Many home buyers incorrectly presume that adding a co-borrower will remedy a low credit score on the part of the primary buyer. With most loan types, the lender will always look at the lowest credit score of all borrowers and use this number when making their final decision. Instead, a co-borrower can help if your debt-to-income ratio (DTI) is too high. With a co-borrower on your note, the lender will now recalculate a new DTI using both incomes and combined liabilities.

Refinancing a loan with a co-borrower

Having a co-borrower on your loan does not have to be permanent. If your income increases or your debt decreases and you are able to be approved on your own, you can refinance the mortgage to have the co-borrower removed, as long as they grant you permission to do so.

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