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If your credit, debt, or income is keeping you from buying a house, you may be tempted to have another person in a more stable financial position help with your loan application. A non-occupant co-client signing your mortgage along with you may be an option your lender offers, but there are a few things you should consider before choosing this option.
Just like any other loan, the cosigner agrees to take full responsibility for the amount borrowed for the mortgage, even if you decide to stop making payments. This makes it a very serious decision, especially for the person cosigning who will not live in the home.
Allowing a cosigner will vary lender-by-lender and is only available when using certain types of mortgages. If you are using a conventional loan, both parties will sign the loan documents but you can choose to have only the occupant owner on the home’s title. The lender will look at the credit score, DTI, and other factors for both people signing for the loan during the application and underwriting processes. For an FHA loan, both people will sign for the loan and be on the title. Additionally, only relatives or close friends are able to be cosigners on FHA loans. This includes parents, grandparents, children, siblings, aunt/uncles, in-laws, spouses or partners, and close friends (with additional documentation detailing the relationship).
If you are considering cosigning for a mortgage or asking someone else to cosign, here are a few points to discuss before moving forward.
- Will the cosigner have access to the mortgage statements? This can help them track that the monthly payments are being made.
- Will the lender send a notification to all parties when the monthly payment is made?
- At what point will the cosigner step in to make the monthly payment if the primary occupant misses a payment? Having a couple of months of payments set aside in the event of an emergency can provide peace of mind.
- How will the two parties communicate? Will this put a strain on their relationship?
If you are struggling to come up with a down payment or meet credit requirements, there are a few options besides using a cosigner that will still allow you to move forward with a home purchase. Low or no down payment mortgage products, such as an FHA loan, VA loan, or USDA loan, may be available. Some states or local areas also have first-time homebuyer assistance programs or affordable dwelling initiatives to help those with lower incomes relative to the cost of living in their area.