Can your parents cosign on a house

Imagine you want to buy a home with a mortgage loan, but you have bad credit.

When you apply for preapproval, you’ll find that lenders can’t offer you the best interest rates. You may have a hard time getting approved due to your credit score. You know that your mother has an 800 credit score, so you ask her to co-sign your loan application. She agrees and signs her name on the applications.

Suddenly, you’re a much more appealing candidate for a mortgage. The lender considers both your income and your mother’s when they look at your application. Lenders also consider your mother’s finances, debt and credit when they look at your application, and decide to approve you for your loan.

From here, your mortgage generally functions the same way it would if you were the only person on the loan. You make a premium payment every month to cover your principal, interest, taxes and insurance (PITI), and you enjoy your home. However, the lender may hold the nonoccupant co-client responsible if you miss a payment. This means your lender has the right to take your mother to court and force her to repay the loan.

Co-signing isn’t just for mortgage loans. You may have a co-signer on personal loans, student loans and auto loans as well.

Whether you can have a co-signer depends on the type of loan you take out. Co-signers are most common on two specific types of mortgages: conventional loans and FHA loans. Let’s take a look at the limitations for both types of loans.

Conventional Loan Co-Signer Requirements

If you’re looking to apply for a conventional loan with a co-signer, they’ll need to sign the home loan and agree to repay the mortgage if the primary occupant defaults. However, the co-signer doesn’t need to be on the home’s title. The lender looks at both your credit and the co-signer’s credit to determine if you can get a loan.

When they look at your application, lenders will also consider you and your co-signer’s debt-to-income (DTI) ratio. Every lender has its own standards when it comes to what they consider an acceptable DTI. Knowing both your own and your co-signer’s debt-to-income ratio can make getting a loan easier.

FHA Loan Co-Signer Requirements

FHA loans are government-backed loans that allow you to buy a home with a lower credit score and as little as 3.5% down. If you want to get an FHA loan with a co-signer (you can have a maximum of two), your co-client will need to meet a few basic criteria.

First, your co-signer must be a relative or close friend. Mortgage lenders consider the following relatives as eligible to be co-signers on FHA loans:

• Parents and grandparents (including step, adoptive and foster)
• Children (including step, adoptive and foster)
• Siblings (including step, adoptive and foster)
• Aunts and uncles
• In-laws
• Spouses or domestic partners

If the co-signer is a close friend, you’ll need to write an additional letter to your mortgage lender explaining your relationship and why your friend wants to help you.

Your nonoccupant co-client must also live in the United States for most of the year. They must have a DTI of 70% or lower if you have less than a 20% down payment. On an FHA loan, the co-signer must be on the title of the home.

Wondering what a co-signed mortgage is and whether it’s right for you? Find out with our in-depth guide to co-signed mortgages.

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A co-signed mortgage (or guarantor mortgage) is often used as a way to help a family member get on the property ladder.

In this article we’ll look at the benefits of co-signed mortgages, who you can have as a co-signer and why it’s important for all parties to take professional advice before going ahead.

What are you looking for?

What is a co-signed mortgage and how does it work?

A co-signed mortgage is one that is signed by a guarantor to help get the application approved. It’s often a way to help young people buy their first home by having their parents or grandparents stand as guarantor.

The co-signers agree to take on responsibility for maintaining the repayments if the primary borrower can’t afford them, but have no ownership rights and are not named on the deeds.

In many cases, they will be required to put up equity or savings as security.

Co-signed mortgages are slightly more complex to arrange than a standard mortgage but are quite common and, in many cases, can be the difference between buying your first house or not.

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Who can co-sign a mortgage?

While it is usually parents who act as co-signatories, this is not the only available route and there are lenders who will accept friends. However, some insist that the co-signer is a close blood relative such as a parent, grandparent or sibling.

Those wanting to use a non-family member as a co-signer will have a smaller pool of lenders which may result in less favourable rates.

Aside from their relationship to the primary borrower, the co-signer will usually need to be on a sound footing financially and have a good credit rating. Essentially, the co-signer ‘props up’ the borrowing power of the primary borrower to reduce the risk to the lender and secure a mortgage.

Co-signers will need to:

• Provide proof of address
• Supply details of income and expenses
• Agree to a credit check

If a co-signer has bad credit, a high debt to income ratio, or a low/fluctuating income, this could actually be detrimental to your application.

But co-signed mortgages are not the only way for third parties to help you afford a mortgage or get on the housing ladder. For details of all available options, read our guide to getting a mortgage with friends and family.

How a broker can help get you the best deal

There are plenty of lenders prepared to offer co-signed mortgages but, typically, anybody looking for one is doing so because they are unable to get a mortgage approved on their own.

A broker who knows the co-signer mortgage market inside out is best placed to find the right deal according to your individual circumstances.

This can be crucial as co-signed mortgages are seen as a short-term measure and lenders typically require evidence of a realistic exit strategy. Getting the lowest rate possible will help the primary mortgagor build their own borrowing power.

By seeking professional advice from someone who deals with co-signed and guarantor mortgages on a daily basis, you can find out quickly whether this is your best route to home ownership. Get in touch and we can arrange for a broker to contact you straight away who fits this description.

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Benefits of having a co-signer

A co-signer can help get a mortgage application over the line when you don’t meet a lenders’ requirements.

Mortgage providers are bound by regulations and must lend responsibly. Each lender has their own criteria aligned with their attitude to risk.

Co-signed mortgages can be beneficial in several situations:

• Getting a mortgage on a low income – particularly as a first-time buyer.
• Bridging the gap when you know you can afford the repayments but are ineligible for the loan.
• Gaining approval when you can’t quite afford the repayments, but have parents willing to contribute until you are able to go it alone. In this case, a joint borrower sole proprietor mortgage might be better as you will usually have a greater choice of lenders.
• Lowering your loan to value which may give you access to better rates.
• Getting approved for a mortgage after credit problems.

Using a co-signer if you have bad credit

You may want a co-signer because you have a history of bad credit and want to ‘borrow’ their good credit rating to get a mortgage or secure a better rate. This is a perfectly plausible strategy but makes it even more important that you approach the right lender.

This is because some mortgage providers insist that both borrower(s) and co-signer(s) have a minimum credit score. Choosing the wrong lender and facing rejection can end up just making the application process more difficult as each credit check will leave a mark on your credit file.

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Co-signing a mortgage is a big decision as it creates a financial link between the borrower and guarantor. But it can be the best route into home ownership given the right circumstances. But how do you work out if it’s right for you?

Our broker matching service will assess your situation (and that of your potential co-signer) before laying out the available options, including a co-signed mortgage, to help you decide which is your best option.

To speak to an advisor who specialises in this niche, call today on 0808 189 2301 or enquire online to arrange a free no-obligation chat.

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FAQs

How many co-signers can I have on my mortgage?

There is no set amount, but you need to consider the practicalities of the arrangement. Lenders will not want complex agreements with multiple signatories for a loan they see as higher risk. So, expect no more than the number of signatories required for any security being put up by your co-signer(s).

Can I get a co-signed mortgage after bankruptcy?

Yes. You will typically need to wait until at least one year has passed since your bankruptcy was discharged, but a co-signer could strengthen your application and make it easier to get a loan approved.

What is the difference between co-signing and co-borrowing?

As a co-signer you share responsibility for repayments but do not own any part of the property. With co-borrowing, all applicants buy the home together and share both payment responsibility and ownership rights.

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We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in all different mortgage subjects.
Ask us a question and we'll get the best expert to help.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

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*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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