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Not everyone can get a mortgage on their own, but that doesn’t mean it’s impossible to become a homeowner. In some cases, you may be able to add a co-signer to the loan to increase your chances of approval. However, before you do so, there’s some important information that you need to know. Keep reading to learn more.
How a co-signer can help you get approved for a loan
Above all, adding a co-signer to your application can help you get approved for a mortgage when you might not be able to do so on your own. Put simply, a co-signer guarantees your loan by agreeing to make to make your mortgage payments in the event that you default.
From the lender’s perspective, having an extra person who’s agreeing to make payments often provides them with the added reassurance that they need to approve your application.
Who makes a good co-signer?
If your lender has told you that you need to find a co-signer for your loan, you’ll want to think about asking someone with the following:
A good credit history
Credit history is one of the most important factors that lenders look at when deciding whether or not to approve someone for a loan. If someone is having trouble keeping up with their current obligations, it’s unlikely that the lender will choose to approve them for additional debt. With that in mind, you’ll want to look for someone who has a good – or excellent – credit history.
Plenty of income
The other thing that lenders check is an individual’s debt-to-income ratio. This ratio is a measure of how much income the person has coming in versus their monthly debt obligations. The lower this ratio is, the better.
Someone you trust
Ideally, your co-signer will be someone with whom you have a close relationship. Remember, asking someone to take on additional debt for you is a big ask.
Who’s responsible for payments when you have a co-signer?
As the primary borrower of the loan, you’ll be the one who’s primarily responsible for making payments. Your co-signer will only be responsible for making payments in the event that you are unable to do so.
Keep in mind that even if the loan ultimately gets paid by your co-signer, missing payments will still hurt your credit.
What are the alternatives to finding a co-signer?
If you don’t want to buy a home with a co-signer, your best bet is to work on building up your own credit score and reducing your own debt-to-income ratio. While it may take you a little bit of time to be able to buy on your own, the financial benefits will be worth it in the end.
Alternatively, you might be able to get a loan on your own if you borrow less. Smaller loans mean smaller payments and less risk for the lender, so it may be worth discussing this option with your lender.