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Co-Signers and Co-Borrowers on a Mortgage

A co-borrower shares both the mortgage liability and property ownership with the primary borrower, while a co-signer (non-occupant co-borrower) signs the mortgage note and assumes liability for the debt without necessarily living in or owning the property. Both roles add income and credit to the application but also add the co-party's debts to the DTI calculation, and both parties' credit reports reflect the full mortgage obligation.

Key Takeaways

  • Co-borrowers share both liability on the mortgage note and ownership on the property title; co-signers (non-occupant co-borrowers) assume liability but may not have an ownership interest.
  • Adding a co-borrower combines both income and debts from both parties into the DTI calculation, which can help or hurt depending on the co-borrower's financial profile.
  • The lower of the two borrowers' representative middle credit scores is used for conventional and FHA underwriting, meaning a co-borrower with a low credit score can increase the interest rate.
  • FHA allows non-occupant co-borrowers at full 96.5% LTV for family members but restricts non-family co-borrowers to 75% LTV.
  • VA loans generally permit only the veteran's spouse as a non-occupant co-borrower; USDA does not allow non-occupant co-borrowers.
  • The full mortgage payment appears on all signers' credit reports, affecting each person's DTI for future borrowing unless the primary borrower can demonstrate 12 months of independent payments.
  • Removing a co-signer from a mortgage typically requires refinancing or loan assumption; a quitclaim deed removes title ownership but does not release mortgage liability.
  • Late payments and defaults on the mortgage affect all signers' credit scores equally, regardless of which party was responsible for the payment.

How It Works

How the Lender Evaluates a Joint Application

When multiple borrowers apply together, the lender evaluates the combined application by aggregating income, combining debts, and selecting the applicable credit score. The qualifying income includes the base, overtime, bonus, and other eligible income from all borrowers, subject to the same documentation and continuity requirements as a single-borrower application. All monthly debt obligations from all borrowers’ credit reports are included in the back-end DTI numerator.

The automated underwriting system processes the combined application and issues a decision based on the aggregate risk profile. In some cases, the AUS may approve a joint application that would be declined for the primary borrower alone, reflecting the income benefit of the added borrower. In other cases, the co-borrower’s credit score may pull down the overall profile, resulting in an approval at a higher interest rate than the primary borrower would receive alone if they could qualify.

How to Determine Whether Adding a Co-Borrower Helps

Adding a co-borrower is beneficial when the income contribution outweighs any negative impact from the co-borrower’s debts and credit score. The calculation is straightforward: compare the DTI and credit score profile of the primary borrower alone to the combined profile. If the combined DTI is lower and the credit score used for pricing is not significantly reduced, the co-borrower helps. If the co-borrower brings substantial debts or a low credit score that increases pricing adjustments, the benefit may be marginal or negative.

A pre-application analysis with the lender can model both scenarios. The lender can run the application through the AUS with and without the co-borrower to determine which configuration produces the best result. In some cases, the primary borrower may qualify alone at a better rate than the joint application if their individual credit score is significantly higher than the combined profile’s score.

How Existing Co-Signed Debt Affects Future Borrowing

When a person has co-signed a mortgage for someone else, that mortgage payment appears on their credit report as a monthly obligation. For future loan applications, the co-signer must include this payment in their DTI calculation unless they can document that the primary borrower has been making the payments independently. Fannie Mae requires 12 consecutive months of cancelled checks, bank statements, or payment records from the primary borrower’s account showing that no payments came from the co-signer’s funds. If this documentation is provided, the co-signed mortgage payment can be excluded from the co-signer’s DTI.

FHA has a similar provision allowing exclusion of a co-signed mortgage from DTI with documentation of 12 months of payments by the primary borrower. VA evaluates co-signed debt on a case-by-case basis as part of the residual income analysis. Without the documentation to exclude the payment, the co-signer’s DTI will include the full mortgage payment, which may prevent them from qualifying for their own home purchase .

Related topics include using gift funds for your down payment, divorce and mortgage qualification, non-occupant co-borrower rules and guidelines, and special borrower situations: a decision guide.

Key Factors

Factors relevant to Co-Signers and Co-Borrowers on a Mortgage
Factor Description Typical Range
Income Benefit vs. Debt Impact
Credit Score Effect
Program-Specific LTV Restrictions
Future Borrowing Capacity of the Co-Signer

Examples

Scenario: Parent as non-occupant co-borrower on an FHA loan
Outcome: Combined back-end DTI: ($700 + $2,100) / $9,500 = 29.5%. Without the parent, the buyer's DTI would be ($200 + $2,100) / $3,500 = 65.7%, which exceeds all program limits. With the parent, the application is easily approvable. However, the lower credit score of 660 is used for FHA pricing. The parent's 720 score does not help because FHA uses the lower representative middle score. The parent's credit report will show the full $2,100 PITIA as a monthly obligation.

Scenario: Co-borrower with high debts reducing the benefit of added income
Outcome: Without the co-borrower: DTI = ($300 + $1,900) / $5,500 = 40.0% with a 740 credit score. With the co-borrower: DTI = ($1,500 + $1,900) / $8,500 = 40.0% with a 650 credit score (lower of the two). The DTI is identical, but the credit score drops from 740 to 650, resulting in significantly higher loan-level pricing adjustments (potentially 1.0%-1.5% in fee increases) and a higher interest rate. In this scenario, the primary borrower qualifies better alone.

Scenario: Co-signer seeking to remove themselves from the mortgage
Outcome: The child can refinance into a conventional loan in their name only. With an LTV of approximately 70.7% ($205,000 / $290,000), no PMI is required. If the child qualifies independently at the current rate, the refinance removes the parent from the note and the parent's credit report no longer shows the obligation. If the child's income is insufficient to qualify alone, the parent remains on the note until the child's financial profile improves or the home is sold.

Common Mistakes to Avoid

  • Confusing co-signing with co-borrowing and not understanding the title implications
  • Adding a co-borrower with a significantly lower credit score without evaluating the rate impact
  • Assuming a co-signer can be easily removed from the mortgage after closing
  • Co-signing without understanding the impact on the co-signer's future borrowing capacity
  • Not running the application through AUS with and without the co-borrower to compare outcomes

Documents You May Need

  • Completed loan application (Form 1003/URLA) for all borrowers and co-borrowers
  • Pay stubs, W-2s, and tax returns for all borrowers (same documentation standards as primary borrower)
  • Bank statements for all borrowers showing assets, reserves, and source of funds
  • Credit report for all borrowers (pulled by the lender as part of the application process)
  • Government-issued photo ID for all borrowers
  • Proof of primary residence for the non-occupant co-borrower (utility bills, lease, or mortgage statement for their own home)
  • Documentation of family relationship between non-occupant co-borrower and primary borrower (if required by the loan program)
  • 12 months of payment records from the primary borrower's account (if an existing co-signer is seeking DTI exclusion for a co-signed mortgage on a future application)

Frequently Asked Questions

What is the difference between a co-signer and a co-borrower on a mortgage?
A co-borrower applies jointly with the primary borrower, shares liability on the mortgage note, and typically has an ownership interest in the property (on the title). A co-signer (non-occupant co-borrower) signs the note and assumes liability but does not occupy the property and may not be on the title. Both are equally liable for the debt and both have the mortgage reported on their credit reports.
Does a co-signer need to live in the property?
No. The co-signer (non-occupant co-borrower) by definition does not occupy the property. The primary borrower must occupy the property as their principal residence. The co-signer maintains their own separate primary residence.
How does adding a co-borrower affect the interest rate?
The interest rate is influenced by the lower of the two borrowers' representative middle credit scores. If the co-borrower has a significantly lower score than the primary borrower, the rate may increase due to loan-level pricing adjustments. If both borrowers have comparable scores, the rate impact is minimal. Always compare the rate with and without the co-borrower before making a decision.
Can a co-signer be removed from a mortgage?
Removing a co-signer from the mortgage note typically requires refinancing the loan in the remaining borrower's name alone, which requires the remaining borrower to qualify independently. FHA, VA, and USDA loans may offer a loan assumption option. A quitclaim deed can remove a person from the property title but does not release them from the mortgage note or liability.
Does a co-signed mortgage affect the co-signer's ability to buy their own home?
Yes. The full mortgage payment appears on the co-signer's credit report and is included in their DTI calculation for future loans. This can prevent the co-signer from qualifying for their own mortgage. Fannie Mae and FHA allow exclusion of the co-signed payment from DTI if 12 consecutive months of payments by the primary borrower from their own account are documented.
Can a non-family member be a co-signer on a mortgage?
It depends on the program. Conventional loans generally require a family relationship or documented close relationship for non-occupant co-borrowers. FHA allows non-family co-signers but limits the LTV to 75% (requiring 25% down), which is impractical for most buyers. VA limits non-occupant co-borrowers to the veteran's spouse. USDA does not permit non-occupant co-borrowers.
Is the co-signer responsible if the primary borrower stops making payments?
Yes. The co-signer is fully and equally liable for the mortgage. If the primary borrower stops paying, the lender can pursue the co-signer for the full balance. Late payments, default, and foreclosure will appear on the co-signer's credit report with the same severity as on the primary borrower's report. The co-signer has no legal protection from this liability unless the note is refinanced or the loan is assumed without them.
Should the co-signer be on the property title?
This is a legal decision that should be made with an attorney's guidance. Being on the title gives the co-signer an ownership interest and certain rights regarding the property. Being on the note without being on the title means full financial liability with no ownership rights. Some co-signers prefer to be on the title to protect their investment; others prefer to stay off the title to avoid complications. State law may affect this decision.
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