What does it mean when a cosigner/co-borrower signs a mortgage? If you have a cosigner or co-borrower helping you take out a mortgage, you don't have to worry about your credit score or cash reserves. The mortgage lender will look at the cosigner or co-borrower's credit score and savings in addition to yours.
What credit score is needed for a co-signer? As a co-signer, you stand in the primary applicant's place during the approval process. You'll need a minimum 580 median score for an FHA or VA loan.
Even if the person isn't living with you and is only helping you make the monthly payments, a cosigner's income will be considered by the bank. Of course, the key factor is to ensure that your cosigner has a good employment history, stable income, and good credit history.
Who Qualifies as a Cosigner? To be a cosigner, your friend or family member must meet certain requirements. Although there might not be a required credit score, a cosigner typically will need credit in the very good or exceptional range—670 or better.
The cosigner must have good enough credit to improve the loan qualifications. This is a common process for first-time homebuyers, who tend not to have the full, positive credit history of other buyers.
If you're applying for an FHA home loan, you aren't forced to apply and be responsible for the debt all by yourself--FHA rules allow a co-borrower or cosigner to apply alongside the borrower. Having a co-borrower or cosigner may improve the FHA loan applicant's chances of getting approved for the mortgage.
Sometimes lenders will deny a loan if the person has too much debt. Cosigning on student loans, a car loan, or a mortgage could add a significant amount of debt for the cosigner. If the cosigner thinks that they will need to apply for a large loan soon after cosigning, the cosigner could be denied.
If you are a cosigner on someone else's account, it's very important that you check your credit reports (you can get them for free once per year from each of the three major credit reporting agencies through AnnualCreditReport.com).
The only people you may find to cosign a loan are those that you trust and are close with, often a family member. That cosigner must have good credit because their credit gets run to make sure that they are in good standing. Only if they are deemed acceptable can someone with bad credit get their loan.
The auto loan co-signer equally accepts the loan debt responsibility along with the primary borrower, the person who will own and drive the car. Three things every co-signer should know: The cosigner is responsible for paying back loan if the primary signer stops paying or is unable to pay.
Having a cosigner with a strong credit score makes lenders less nervous about giving you a personal loan if your own credit isn't great. If you don't make your payments, they can request them from your cosigner. Still, getting a cosigner might not be easy, as cosigners take on significant risk.
A cosigner goes on the mortgage with the primary borrowers. If the borrowers don't fully qualify for the loan on their own (usually due to deficiencies in income, credit, down payment, or all three) the cosigner's better credit and financial situation make the mortgage application stronger.
To purchase a $300K house, you may need to make between $50,000 and $74,500 a year. This is a rule of thumb, and the specific salary will vary depending on your credit score, debt-to-income ratio, the type of home loan, loan term, and mortgage rate.
No down payment is required for VA, USDA and doctor loan programs detailed above. What credit score do I need to buy a house with no money down? No-down-payment lenders usually set 620 as the lowest credit score to buy a house.
Being a co-signer itself does not affect your credit score. Your score may, however, be negatively affected if the main account holder misses payments.
A cosigner with good credit improves the primary borrower's overall creditworthiness, meaning lenders are more likely to approve the loan or offer better rates.
If the conditions are met, the lender will remove the cosigner from the loan. The lender may require two years of on-time payments, for example. If that's the case, after the 24th consecutive month of payments, there'd be an opportunity to get the cosigner off the loan.
Unfortunately, the answer is no. That's because a mortgage underwriter will default to the lower of the two credit scores in a joint mortgage application. For example, let's assume we receive an application from a homebuyer who has a credit score of 550 which is too low to qualify for a conventional loan.
Typically, subprime lenders ask that cosigners have a minimum monthly income of $1,500 to $2,000 a month before taxes from one job. They also check to see that they have a qualifying debt to income (DTI) ratio of no more than 45% to 50% of their monthly income.
Reasons for an FHA Rejection
There are three popular reasons you have been denied for an FHA loan–bad credit, high debt-to-income ratio, and overall insufficient money to cover the down payment and closing costs.
The down payment
The fact that you're adding a cosigner to your loan does not make a down payment requirement go away. According to the most recent guidelines from the Federal National Mortgage Association (or “Fannie Mae”) – the loan-to-value ratio on the property being purchased cannot exceed 95%.
Minimum FHA loan credit score requirement
The minimum credit score to qualify for an FHA loan is 580 with a down payment of 3.5 percent. If you can bump up your down payment to at least 10 percent, you can have a credit score as low as 500 and still qualify.