Mortgage Cosigner

What is a mortgage cosigner?

Updated June 23, 2022

A mortgage cosigner is a secondary person who signs a home loan alongside the primary borrower. Both the cosigner and the primary borrower would assume all rights and responsibilities of the loan repayment, thus the parties would be jointly responsible for the full amount of the mortgage. 

What’s the point of a cosigner?

A cosigner acts as a backup in case the primary borrower cannot fulfill his or her obligation to repay the loan. Oftentimes, the cosigner has a higher credit score or a deeper credit history, enabling the borrower to purchase a home that they wouldn’t otherwise qualify for on their own.

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What’s the difference between a cosigner and a co-borrower?

Most often, a co-borrower is also an owner of the property. A co-borrower’s name is listed on the deed and they would be entitled to 50% of the profit once the house is sold. A cosigner is not a property owner and their name would not be listed on the deed. Thus, they would not be entitled to any portion of the home’s profit at closing. The cosigner’s name is listed on the mortgage only.

A mortgage cosigner signs a home loan alongside the primary borrower. Credit: Cytonn Photography/Unsplash

Where can I find a cosigner?

A cosigner is most likely a family member but could also be a close friend. Often a parent will cosign for a child purchasing their first home, but relationships between borrowers and cosigners vary. It is also possible to purchase a cosigner through a cosigning company. In that case, the primary borrower would have no history with the cosigner: the person would be a complete stranger. Partnering with a cosigner one doesn’t know isn’t recommended as it brings more risk than signing with a person one knows personally.

How does someone qualify as a cosigner?

Lenders look for people with high credit scores, favorable credit reports, and a long credit history showing payments made on time. Cosigners should also be employed and able to verify their income. 

What are the risks of cosigning a loan?

When someone agrees to cosign a mortgage loan, they usually believe that the primary borrower will have no issue making the monthly payments. But a borrower may struggle to pay the loan on time every month. If that happens, a cosigner’s credit score may be negatively affected if they’re unaware of the primary borrower’s struggles to make the payments in full and on schedule. In this case, a cosigner would need to step in and make those mortgage payments themselves. 

Partial payments and late payments can also lower the cosigner’s credit score. While tardy payments and defaulting on a mortgage would be detrimental to the cosigner’s credit during the life of the loan, it could also impact their purchasing power for years to come.

In some states, the lender can attempt to collect a past due amount from the cosigner before contacting the primary borrower. If the account is not brought up to date, the lender may sue the cosigner. Check the laws in your state.

What are the advantages of cosigning a loan?

If the primary borrower pays the loan on time every month, the cosigner’s credit score could increase. Being a cosigner can also build one’s credit, adding to credit history and helping future purchasing power. There’s also personal gratification, depending on the circumstances, such as a parent assisting their child with purchasing a home, and often getting a lower interest rate, saving the child money.

How does a cosigner protect their credit?

Open communication between the primary borrower and cosigner is essential, in case the borrower cannot make the payments. The borrower should keep the cosigner informed throughout the life of the loan, or the cosigner should request account access to track that all payments are made on time. It may be best to draw up a written agreement between both parties to lay out what’s expected of the primary borrower and the cosigner.

Can a cosigner be removed from a mortgage?

Though it’s not always a straightforward process, it is possible to remove a cosigner from a mortgage if the borrower agrees to the release. One of the simplest ways to remove the cosigner from the loan is to refinance the mortgage. In that case, the borrower would have to qualify for financing alone, and prove that they can repay the loan themselves. Unless their credit and income improved substantially, usually the borrower would not be eligible for the low interest rate they had with the cosigner.