Should You Consider Adding Co-Borrower to Your Mortgage?

You make purchases all the time: groceries, clothing, gas. However, some larger purchases, like a new car, college tuition, or a home, require you to borrow money. For any situation where you are borrowing money, your monthly debt, income, employment history, and credit history will be considered. As a borrower, you have the option to apply for a loan on your own or with a co-borrower.

What is a co-borrower?

A co-borrower is any additional borrower whose income, assets, and credit history are used to qualify for the loan and whose name appears on the loan documents. For example, your spouse could be the co-borrower on your car loan, or your mom could be a co-borrower on your home loan. Along with the borrower, a co-borrower assumes financial responsibility for the full loan amount and for making payments on time. Additionally, their name usually goes on the title, which means they have part ownership in the property. Most types of home loans will only allow you to add one co-borrower to your loan application, but some allow as many as three. Your co-borrower can be a spouse, parent, sibling, family member, or friend as an occupying co-borrowers or a non-occupying co-borrowers. Usually, a spouse would be an occupying co-borrower, because they will live in the property with you. If your dad is going to be your co-borrower, he will most likely be a non-occupying co-borrower because he won’t be living in the property with you.

However, a co-borrower is different from a co-signer.

Like a co-borrower, a co-signer financial history and assets are considered in the loan application, and they’re financially responsible for the repayment of the loan. However, unlike a co-borrower, the co-signer’s name usually does not appear on the title of the property. This means the co-signer has no ownership in the property itself, just a financial responsibility for the loan amount.

Who is responsible for what?

When you take out a home loan, you, as the borrower, assume the responsibility of paying the loan back in full and on time. Your monthly mortgage payment will include principle, interest, taxes, and insurance. Taking out a loan and making payments affects your credit. If you make late payments or miss payments, your credit will be negatively effected, and vice versa.

A co-borrower is basically a co-owner and the borrower’s equal in the mortgage loan process. The co-borrower is just as responsible as the borrower is for repaying the full loan amount on time.

A co-borrower assumes the same credit risk as the borrower.

If the mortgage payments aren’t made on time, it will hurt the credit scores of both borrowers. If they’re made correctly, it will benefit both scores.

Why add a co-borrower?

Having a co-borrower has many advantages. For one, it can allow you, as the borrower, to qualify for a larger loan amount since both the borrower and the co-borrower’s income, assets, and credit histories are factored in. In some situations, like with spouses, a co-borrower will help make payments on the loan and pay for costs associated with the property, like a kitchen update or water heater replacement.

Adding a co-borrower to your loan application can also help if you lack a credit history. With no credit or a low score, a lender may be hesitant to lend to you. You may be more likely to be approved by having a co-borrower (or co-signer — but remember, they’re different), who acts a a guarantor for your loan. If you can’t make your payment, the co-borrower is responsible for making it. In this way, a co-borrower adds a layer of protection for the bank from you defaulting on a payment.

Co-borrowing is common with couples, many of whom want to pool their finances and credit worthiness to qualify for a bigger loan. However, having both spouses on the mortgage loan is not a requirement. You would only add your spouse if they bring something more to the table with respect to income and assets. Likewise, you wouldn’t want your dad to be your co-borrower if he had a much lower credit score than you and didn’t strengthen your mortgage application in other categories, like with his debt to income ratio. Buying a home is a big decision and investment. If you don’t qualify for a loan on your own, or if you want to combine financial histories to qualify for more, adding a co-borrower to your loan application could be a good option for you.