Co-Signers and Co-borrowers
Co-Signers and Co-borrowers. I wanted to talk a little bit about co-signing. You could be a co-borrower whether you’re co-signing or co-borrowing.
When you’re a co-borrower, you are on title. You you own the property and you’re also on the loan.
When you’re a co-signer, you’re just signing on the loan. You’re not necessarily on title. You’re just responsible for the debt.
Why does someone need a co-signer or co-borrower?
Either way as a co-signer or co-borrower, you’re responsible for the loan. The important thing to note is that a lot of times I’ll have somebody who maybe doesn’t qualify on their own, they’re fresh out of college, their income is a little bit low for what they want to buy. But they don’t want to wait until their income comes up, and they really want to buy now. So they’re going to add a co-signer. Most people think right off the bat, I could just get a co-signer, co-borrower. Mom or Dad, or both?
Wait, there’s paperwork involved?
Yeah, no problem. They take it literally. Like it’s just signing. Co-signing, they’re just putting ink on paper. Quick couple of signatures at the closing table, and I get my loan, right? No, it’s a full, thorough underwriting process. Just like it is for the actual borrower who’s going to live in the property. So if you have non-occupant co-borrowers or non-occupant co-signers, parents, let’s say. It depends on the parents finances. If they have a big mortgage and car payments and income that just can’t qualify for a child’s mortgage and their own mortgage and their own debt load. Then the loan will get rejected.
Now, I’ve had instances where a parent who makes a lot of money also had a ton of debt, neutralize their income and they’re were no help as a co-signer. And then I’ve had another parent who had modest income, but no debt, they lived in a property that was owned free and clear, drove a used car, paid off their credit cards month to month, and modest income with no debt. They were more helpful than big income and big debt.
So just realize, if you’re going to get a co-signer or co-borrower, we’re still going to put them through the same analysis as the main borrower or the main occupant. And the numbers still need to make sense. If the debt ratios don’t make sense with the co-borrower or co-signer’s income and debt load, the loan still gets rejected. So you have to consider that carefully when you’re thinking who might make for a good co-signer or co-borrower. Hope that helps.